27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
Since peaking at $27.53 on June 6, General Electric (NYSE: GE) has shed two points as the market has continued its relentless march to new all-time highs.
GE, which was up 500 percent from its March 2009 low ($5.73) when it briefly touched the $28.00 level, is one of the major components in the indexes that has been unable to revisit its former all-time high from October 2007 ($42.50). GE has actually been underperforming the market since December 31, when it peaked at $28.09.
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One primary reason has been its underperforming assets and liabilities associated with its GE Capital unit.
Revenue Woes
What has been troubling the Street has been GE's declining revenue stream. Despite delivering inline or slightly better EPS results over the last eight quarters, it has experienced declining revenues in five of those eight quarters.
A few of those misses have been by a wide margin:
- Q3 2012: off by $590 million
- Q3 2013: off by $457 million
- Q1 2014: off by $350 million
In its latest earnings announcement on July 18, the company matched EPS estimates at $0.39, but was once again light on the revenue end by $100 million. With so many companies moving in the opposite direction, it should come as little surprise that investors have abandoned the former Wall Street darling.
The sharp decline off the June 6 high is resembling the move of the decline from late December ($28.03) to the February 3 low ($24.32), with steep drops, a period of consolidation and then another leg lower. The down move ending with a triple bottom at the $24.30 level instigated a slow and steady rebound to the June 6 high ($27.53).
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GE is currently attempting to put in another triple bottom at the $25.40 level. The overall skittishness in the market is not helping the cause, but there is little doubt some major institutions are focusing on this area. Interestingly, this area coincides with the two lows it made in this same area back in early April.
Chart courtesy of Neovest
Wall Street's Take
The Street has been less than enamored with the issue since April 2013. It has been subject to two downgrades and three Buy reiterations, while two firms have maintained a Neutral stance.
Standpoint Research, headed by the opinionated Ronnie Moas, initiated coverage in December with a Sell rating and a Street low price target at $22.00. The Street high target stands at $32.00 from Citigroup and Deutsche Bank, who have stuck with their Buy ratings.
GE is clinging to its major support level, despite the overall weakness in the broad market in Wednesday's session. This is a good sign if the market can rebound, which it has repeatedly done. A return to new all-time highs may drag GE along in the rally.
What's Next?
An investor content with its 3.28 percent dividend yield can purchase the issue at this level with nearly one point of downside protection if held for one year. That would take GE down to $24.40, which was another major level in February and may attract additional institutional buying interest.
If the issue rebounds to its former high or even the major resistance level at $27.00, there would be some capital appreciation along with the healthy dividend. At that time, the investment can be reevaluated, especially if the company can reverse the negative revenue stream.
If GE has not revisited its all-time high during this rip-roaring bull market, there is a chance it may never will.
With such low interest rates now and for the foreseeable future, GE may continue to attract buying interest as investors strive for yield in this current environment.
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.