General Electric Company (GE) reports fourth quarter earnings next week, with analysts expecting the struggling conglomerate to post earnings per share of $0.24 on $32.23 billion in revenues. The stock gapped down and sold off nearly 9% after the October release, with shareholders hitting the exits in response to missed expectations and a severe dividend cut. Current investors hope that the upcoming release includes an encouraging progress report on previously announced efforts to cut costs and dump unprofitable ventures.
The stock fell within one point of the 2009 bear market low in the fourth quarter of 2018 and has bounced more than two points into late January. The uptick has mounted the descending 50-day exponential moving average (EMA) at $8.60, signaling a major test because price action hasn't held this level since a January 2017 breakdown. As a result, a rapid advance into the double digits should set off a bullish signal that encourages the next wave of bottom fishers to get off the sidelines.
Conversely, accumulation readings remain glued to multi-decade lows despite the bounce, and no other technical signals are proclaiming the end of the brutal downtrend. Given those headwinds, the stock could easily sell off after the earnings release and head into a test of the 2009 low. While that level has the power to generate a long-term bottom, this stock's horrific downtrend has sliced through support level after support level since 2016.
GE Long-Term Chart (1988 – 2019)
The stock entered a long-term uptrend after the 1987 crash, splitting three times during an ascent that posted an all-time high at $60.75 in August 2000. It fell more than 60% during the internet bubble bear market, finally bottoming out in the low $20s in the first quarter of 2003. The subsequent bounce stalled at the .382 Fibonacci sell-off retracement level in 2004, ahead of a 2007 breakout that ended at the 50% retracement.
The subsequent decline broke the 2003 low during the 2008 economic collapse, reaching a 17-year low at $5.73 in March 2009. A healthy recovery wave stalled at new resistance in 2011, giving way to sideways action, ahead of a 2013 breakout that attracted strong buying interest. The rally continued into July 2016's eight-year high at $33.00 and reversed, entering a pullback that accelerated into a major downtrend in 2017. Price action into October 2018 carved three minor bounces, ahead of a climactic plunge that carried 52% in less than two months.
The monthly stochastics oscillator entered a sell cycle in January 2016 and held that orientation for more than two years, highlighting extreme weakness. It finally flipped into a buy cycle in June 2018, issuing an entry signal that trapped dip buyers in a bearish crossover just two months later. The indicator remains stuck at the oversold level despite the six-week bounce, warning that aggressive selling pressure could return at any time.
GE Short-Term Chart (2016 – 2019)
The stock failed ten attempts to mount 50-day EMA resistance in 2017 and 2018, ahead of an 11th penetration in early January 2019. The bounce stalled after the breakout, yielding a three-week test that may continue into earnings. A rally above $10.00 after the news would be significant, setting off buying signals ahead of steeper resistance at the 200-day EMA near $11.25. The stock has not tested that level since the 2017 breakdown.
The on-balance volume (OBV) accumulation-distribution indicator turned lower from an all-time high in 2017, entering a distribution phase that accelerated during 2018. It has now dropped to the lowest level since 2009, in convergence with the falling price. Minor upside in the past six weeks barely registers on the indicator panel, failing to exhibit the buying power needed for a long-lasting bottom. As a result, we have to assume that the downtrend is still in force, exposing the stock to new multi-decade lows.
The Bottom Line
General Electric stock has bounced into January but failed to set off long-term buying signals, increasing risk ahead of next week's earnings report.
Disclosure: The author held General Electric shares in a family account at the time of publication.