General Electric Company (GE) shares rallied 10.3% to a 52-week high on Wednesday after the company beat Q4 2019 profit and revenue estimates. Investors chose to ignore a warning about fiscal year 2020 earnings per share (EPS), noting improved cash flow while believing that the stock has finally entered an uptrend. It's hard to argue with that bullish conclusion because price action has now confirmed support at the 50- and 200-day exponential moving averages (EMAs) for the first time since a 2017 breakdown.
Even so, market players looking for rapid upside into the highs posted in the middle of last decade are likely to be disappointed because the advance has to mount multiple supply layers left behind by the ferocious decline that ended at a 10-year low in December 2018. These stair-steps predict that the nascent uptrend will slow or stall in the mid-teens, with resistance between $15 and $18 likely to require weeks or months of buying interest to overcome.
GE Long-Term Chart (1995 – 2020)
The stock entered a historic advance in 1995, underpinned by the break-up of the military-industrial complex, which opened new markets around the world. It split three times during an ascent that posted an all-time high at $58.41 in the third quarter of 2000, at the same time the broken internet bubble was dumping the majority of equities into downtrends. A pullback into 2001 found support at $35.02, but that level broke after the Sept. 11 attacks, generating steep downside that finally ended near $20 in October 2002.
An early 2003 pullback to support completed a double bottom reversal, setting the stage for modest gains into the 2004 high in the mid-$30s. A 2007 breakout above that resistance level stalled at the 50% retracement of the prior downtrend, marking the highest high in the following 12 years, while a vertical sell-off during the 2008 economic collapse dumped the stock through 2002 support into a 17-year low at $5.51.
GE recovered slowly into the new decade, but heavy debt levels kept a lid on the upside, yielding a stair-step advance that ended near the .618 Fibonacci retracement of the bear market decline in 2016. The subsequent pullback completed a triple top breakdown in 2017, setting off a brutal downtrend that finally ended less than a point above the 2009 low at the end of 2018. Bottom fishers and the value crowd returned in 2019, carving a recovery wave that established a new uptrend when it mounted 50- and 200-day EMA resistance under $10.
The monthly stochastics oscillator entered a long-term buy cycle from a deeply oversold level in December 2018 and shook off a summer decline, reestablishing the bullish trajectory in November. Since the start of 2018, the indicator has carved a five-wave pattern that has just now crossed into the overbought zone, pointing to growing tailwinds that could persist into the second half of 2020.
GE Short-term Chart (2017 – 2020)
Unfortunately for bulls, the on-balance volume (OBV) accumulation-distribution indicator has not kept pace with bullish price action. OBV bottomed out with price in December 2018 and entered a modest accumulation phase that ended in March 2019. Bears took control into the summer months, limiting gains, while committed buyers returned in August. However, buying pressure since that time has failed to reach the prior high, generating a bearish divergence that could signal limited upside in coming months.
In addition, the 50-month EMA has now dropped to $16, imposing a major barrier just three points above Wednesday's closing print. It won't get any easier for bulls once that level is mounted because the 2017 breakdown through the 2015 low at $18.63 may also increase selling pressure, especially from shareholders who made the unwise decision to hang tough during the furious decline and are now looking to get out even.
The Bottom Line
General Electric stock has confirmed the first uptrend since 2016, but upside may be limited to the mid- to upper teens in the coming months.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.