General Electric Company (GE) stock is trading higher by more than 8% in Wednesday's pre-market after the conglomerate beat modest third quarter profit and revenue expectations. Revenues fell 0.1% year over year, with healthy gains in organic orders and renewable energy, while power underperformed badly, posting a 30% decline. The company reiterated fiscal year 2019 guidance, expecting earnings per share (EPS) of $0.55 to $0.65 to benefit from a $1.3 billion restructuring gain.
The stock rallied to a two-month high after the news but is still trading under resistance near $10 generated by an August breakdown. That level has narrowly aligned with the 50-week and 200-day exponential moving averages (EMAs), which have marked resistance since a 2017 breakdown. It's essential that price action lift into the double digits during the regular session to improve the technical outlook and reduce the supply of bottom fishers and dip buyers stuck in losses months and years after taking exposure.
Buying interest has improved from dismal levels since July, but volume indicators still show little or no enthusiasm that's needed for the stock to end the long-term uptrend and trade up to a first target in the mid-teens. Even so, the upbeat earnings report will encourage sidelined investors to take a second look, hoping to find a reason to get on board at an exceptionally cheap price in hopes of a multi-year recovery.
GE Long-Term Chart (1990 – 2019)
A powerful uptrend posted impressive gains throughout the 1990s, generating three splits during an ascent from $3.07 into August 2000's all-time high at $58.41. Rapid expansion after the fall of communism drove worldwide growth that benefited key industrial and financial divisions, but the 2000 top warned that the uptrend wasn't immune from economic cycles that nearly bankrupt the company eight years later.
The stock fell around 60% during the subsequent bear market, bottoming out near $20 in October 2002, and bounced into a mid-decade high at $36.30. A 2007 breakout made limited progress, adding less than four points before turning tail in a 2008 decline that accelerated into a near-death spiral during the economic collapse. Bad decisions at the GE Capital division were to blame for the plunge, which finally ended at $5.51 in March 2009.
The stock ticked higher into the new decade, entering a persistent recovery wave that posted higher highs into 2016, when the rally stalled near the .786 Fibonacci sell-off retracement level in the lower $30s. A 2017 breakdown expanded into a freefall a few months later, generating intense downside into a 2018 selling climax that ended less than one point above the 2009 low. Price action in 2019 still hasn't carved a bottoming pattern, exposing even lower lows.
The monthly stochastics oscillator crossed into a buy cycle in January 2019 after spending 20 months in the oversold zone, but the signal failed in August, exposing continued weakness. It's now accelerating toward the oversold zone, lowering the odds that the stock will mount tough resistance at the broken moving averages for more than a few sessions. Even so, extreme oversold readings in 2018 should keep price floating above the low posted last year, at least for now.
GE Short-Term Chart (2017 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator topped out in 2016 and entered an aggressive distribution wave that accelerated to a multi-decade low in the fourth quarter of 2018. Bottom fishers lifted OBV into March 2019, when fresh selling pressure took control once again. A series of intermediate lows since that time have held above the 2018 low, but there's no sign of the buying power needed to end the long-term downtrend.
A strong buying thrust above $10.00 in the regular session should be watched closely to see if the stock has the power to build a basing pattern at new support. Buying volume will need to increase substantially to underpin that defense, or the stock could easily reverse in a bull trap that damages already fragile sentiment. A few timely upgrades would help the process, but Wall Street analysts are sitting on their hands so far this morning.
The Bottom Line
General Electric stock has rallied into major resistance in the pre-market after the company delivered an upbeat third quarter earnings report.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.