General Electric (GE) Posts Gains After Upbeat Quarter

General Electric Company (GE) is trading higher by more than 9% on Wednesday morning after posting a third quarter 2020 profit of $0.06 per share, much better than expectations for a $0.03 loss. Revenue fell 16.9% year over year to $19.42 billion, beating estimates of $18.94 billion. Revenue in the troubled aviation unit fell 39% year over year, highlighting slumping demand due to the COVID-19 pandemic. The company now expects positive fourth quarter industrial cash flow in the range of $2.5 billion.

Key Takeaways

  • General Electric beat modest third quarter earnings and revenue estimates, prompting a buy-the-news reaction.
  • The stock could test short-term resistance at $8 and $8.50 in coming sessions.
  • A quick rally into the double digits doesn't seem likely, due to persistent headwinds.

The market's early reaction was modest, triggering a quick uptick to $7.60, followed by a shallow decline that settled on the 200-day exponential moving average (EMA), which has marked resistance since February. It is also stuck within the confines of a trading range between the May low at $5.48 and June high at $8.57 while remaining under last week's high at $8.03. This price level will need to get mounted in order to improve the short-term technical outlook.

Wall Street has grown incrementally positive on General Electric in 2020, with a "Moderate Buy" rating based upon six "Buy" and six "Hold' recommendations. No analysts are recommending that shareholders close positions, even though it's trading close to an 11-year low. Price targets currently range from a low of $5.00 to a Street-high $11.00, so the current batch of bulls might need to curb their enthusiasm.

Cash flow is the net amount of cash and cash equivalents being transferred into and out of a company. Positive cash flow indicates that a company's liquid assets are increasing, enabling it to settle debts, reinvest in its business, return money to shareholders, and pay expenses. 

General Electric Long-Term Chart (2000 – 2020)

Long-term chart showing the share price performance of General Electric Company (GE)

The stock booked historic gains in the 1990s, posted an all-time high at $58.41 in 2000, and fell into the low $20s in the first quarter of 2003. A mid-decade recovery wave stalled well below the prior high in 2007, giving way to a pullback that accelerated into a near-death spiral during the 2008 economic collapse. Keep the 2009 low at $5.51 in mind because General Electric stock has been testing that historic level for the past 22 months.

Steady but shallow upside into 2016 carved the next long-term lower high in the low $30s in 2016, giving way to a breakdown and decline that accelerated to a 10-year low in the fourth quarter of 2018. The stock posted decent returns into February 2020, when it posted the third lower high, ahead of a pandemic decline that sliced through the 2018 low. Price action into October has been testing that breakdown as well as support at the 2009 low.

General Electric Short-Term Chart (2019 – 2020)

Short-term chart showing the share price performance of General Electric Company (GE)

The on-balance volume (OBV) accumulation-distribution indicator fell to a multi-year low in May 2020 and ticked higher, rolling over just one month later. OBV bounced after testing the deep low last month and reversed at short-term resistance last week. Watch this level for a breakout in coming sessions because the uptick will establish a tailwind that favors continued upside into the June high at $8.57.

A rally above last week's high will also mount the 50-week EMA for the second time since 2017. The stock traded above that persistent barrier for three months into February, with the subsequent failure reinforcing this tough resistance level. A change in the longer-term outlook will require mounting the 2019 high and 50-month EMA around $13.25, which seems unrealistic given the third quarter's modest uptick and the likelihood of pandemic headwinds persisting well into 2021.

An exponential moving average (EMA) is a type of moving average (MA) that places a greater weight and significance on the most recent data points. The exponential moving average is also referred to as the exponentially weighted moving average. An exponentially weighted moving average reacts more significantly to recent price changes than a simple moving average (SMA), which applies an equal weight to all observations in the period.

The Bottom Line

General Electric is trading higher in Wednesday's session after beating top- and bottom-line third quarter estimates.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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