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General Electric's Strength May Be Tested On Coming Days Of Weakness

General Electric's Strength May Be Tested On Coming Days Of Weakness
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Shares of General Electric Company (NYSE: GE) have exploded off of the lows from last Wednesday for more than 8 percent of upside in just a few short sessions. That performance exceeds that of the broader market in terms of percentage gains, but closely mirrors it in terms of daily directional moves.

Which scenario reveals more about the truth behind General Electric's corporate reality: that where General Electric was falling 15 percent since June or that of the last week's upside push?

What The Bulls Like

  • The company pays a 3.5 percent annual dividend.
  • Cheap valuation metrics: Price-to-book of 1.89, price-to-sales of 1.74 and the enterprise value of $610 billion easily trumps the market capitalization of $256 billion.

Related Link: Morgan Stanley: General Electric Hopes To Squeeze Revenue From Software

What The Bears See

  • A price-to-earnings ratio of nearly 15 that is not justified by the 2015 estimates of flat revenue growth and only 7 percent EPS growth.
  • A very heavy debt load as evidenced by the 260.7 percent debt-to-equity ratio and the cash versus debt position of 10.9/374.1.

Technical Outlook

Technicians note that shares bounced almost precisely off of the 100 percent Fibonacci price projection for what appears at this point to be an "ABC" downside correction at $23.73. With the stock being as oversold as it was at that particular level, it was nearly a perfect spot for aspiring longs to enter new bullish bets. Now, after an 8 percent rally, it is not as ideal from a reward/risk perspective.

The technicians note that those who missed the long side entry last week will do well to wait for the stock to fill one or both of the upside gaps that were created in the last week. The first of those two gap-fills will be at $25.03 and the other will be at $24.25. If the bulls in General Electric can hold their ground at one of those two levels, a test of last Wednesday's lows will be unnecessary. However, if the second support at $24.25 fails, then last week's low of $23.69 will almost certainly be tested. If that level fails, then the stock -– and most likely the market -– is in big trouble. Resistance for the stock comes in at $25.63 and $26.45.

It looks like General Electric will have an opportunity to show how strong it is in the coming days, as the two upside gaps that were created in the last week are tested. As a great proxy for the stock market and the global economy, General Electric's fate at those two levels could be key for broader market watchers to monitor.

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Stock chart

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