General Electric Company (NYSE:GE) stock rallied hard off its late-August lows near $7.80, and is now pacing for its fourth straight weekly win, up 0.2% at $9.43, at last check. The surge is running out of steam near the psychologically significant 200-day moving average, while just above here is GE's 120-day trendline, which has had bearish implications for the equity in the past -- and could mark a prime time for put buyers to bet on the stock's next leg lower.
According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been four other times in the past three years GE has run up to its 120-day moving average, after which the stock was 11.3% lower, on average, one month out, with 75% of the returns negative. Another move of this magnitude would put General Electric shares back below $8.40 by mid-October.
What's more, implied volatilities on GE are at low levels right now. The stock's Schaeffer's Volatility Index (SVI) of 34%, which ranks in the 18th annual percentile and sits just a few notches below its two-year average of 37.3%.
If the equity's SVI holds steady near its two-year average over the next month, White's modeling shows that an at-the-money General Electric put option could potentially return 175% on another expected decline from resistance at the 120-day trendline. In other words, prospective put buyers could almost triple their money on an 11.2% slide in the shares.
More short selling could increase pressure on GE stock, too. Short interest surged 25.7% in the two most recent reporting periods to 130.03 million shares. This represents just 1.5% of the equity's available float, though, meaning the bearish bandwagon is far from full.
Negative analyst notes could turn up the heat, as well. While six of 15 brokerages still maintain a "buy" or better rating on GE stock, the average 12-month price target of $10.76 is a healthy 14.1% premium to current trading levels.