PreMarket Prep Stock Of The Day: General Electric

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

It's not often that large-cap companies do a reverse split. On most occasions, smaller companies do a reverse split to elevate their stock price so they can continue to list on a major exchange.

What Is A Reverse Split? It's a corporate action that consolidates the number of existing shares of stock into fewer, proportionally more valuable, shares. As a result, it reduces the number of shares available for trading and can be pursued for a number of reasons. As stated above, it can signal a company in distress.

The New GE Price: Going back 20 years doesn't make for a pretty chart that's not really different from the old one. In essence, General Electric GE is a long way away from the lofty levels it was at 20 years ago and may be there again.

After the reverse split, the 20-year high is $327.29. The issue made a new 20-year low in March 2020 when it bottomed at $43.84, which came just under the March 2009 low of $44.05.

With GE trading at the $100 area, it ' much closer to the all-time low than the all-time high, reflecting the company's miserable underperformance since the financial crisis.

Price Action Since Reverse Split: GE began trading on an adjusted basis on Aug. 2. Interestingly, the issue is trading at nearly the same level as its closing price on that day of $100.60. Therefore, there hasn't been a mass exit out of the issue by large institutional shareholders that are saddled with the issue in their portfolio.

What is noteworthy about the overall price action is that the post reverse split high ($107.23) from Aug. 12 was only a few pennies away from the high in its first session as a higher-priced issue. As a result, with double-top in place and the issue well off it, there's a clear roadblock to higher prices for the issue.

On the downside, the post reverse split low ($98.11) was made on the second day of trading. That level was almost revisited in Thursday’s session when the issue made a low at $98.60. Also, the issue posted its close since the reverse split as it ended Thursday’s session at $99.42.

Trying To Be Optimistic: Based on only Friday’s price action, there is one favorable scenario for the issue. That being it found support off the open between Thursday’s low and the close at $99.10. Since making that low, its rally came up just shy of Thursday’s high ($100.82) as $100.67 stands as the high for the session.

Although the pair of lows at the bottom aren't as close as the pair of highs at the top, investors may approach the issue as a trading range stock that just tested the bottom of the trading range and has reversed course.

That makes the new GE not much different from the old GE, which would grind in tight ranges making several lows and or highs in the same area and then reversing...but now at higher prices.

Photo: Momoneymoproblemz via Wikimedia Commons

Posted In: TechnicalsTrading Ideas