The pandemic may deal a death blow to General Electric Company (GE), which has struggled for years to reform a bloated organization and shed high debt. The company missed first quarter 2020 earnings estimates by a wide margin in April, reporting a 24.8% drop in year-over-year revenue, with all divisions except health care reporting losses. The aviation business is taking the biggest hit so far, forecasting a 25% permanent workforce reduction due to the "deep contraction" of commercial aviation.

GE withdrew 2020 guidance on April 9 and reiterated a dismal outlook during the earnings presentation, expecting a sequential decline in second quarter financial results. Free cash flow is also declining rapidly, potentially forcing the company to seek a takeover by a liquid suitor or add to debt through the credit markets. Neither prospect is a done deal because well-run corporations don't need another noose around their necks and banks may be reluctant to lend.

GE stock has been crushed since topping out in the low $30s in 2016, dropping more than 80% to the lowest low since the 2008 economic collapse, when the company narrowly escaped bankruptcy after the collapse of the GE Capital division. It has been an even rockier ride in the past 20 years, with a sequence of lower highs while the rest of the market universe benefited from two secular bull markets.

Technically speaking, time may be running out because GE stock is now trading just 70 cents above the 2009 low, which marks the dividing line between major downtrend and potential death spiral. Unfortunately, long-term price and volume patterns are setting up in the wrong direction, with the 2020 downdraft raising the odds for a major breakdown that drops the stock to the lowest low since 1990.

GE Long-Term Chart (1990 – 2020)

General Electric Company (GE)
TradingView.com

The company prospered after the fall of communism in the 1980s, entering a historic uptrend that posted four stock splits into August 2000's all-time high at $58.41. It turned sharply lower when the internet bubble burst, losing more than half its value into the October 2002 low. A shallow uptrend during the mid-decade bull market posted modest gains, topping out at a lower high just above $40 in 2007.

A pullback into 2008 accelerated into a full-blown panic, dropping the stock more than 85% into the 2009 low at $5.51. Keep that price in mind because the 2020 decline is now testing that support level for the second time in 18 months. A recovery wave into the new decade reached resistance at the 2002 low in 2011, denying progress until a 2013 breakout generated a shallow uptrend that posted the second lower high in 16 years in 2016.

A 2017 downtrend ignored multiple bottoming calls, finally entering a climatic phase in October 2008 and dropping vertically before finding support just above the 2009 low. A two-legged bounce ran out of steam in February 2020, carving the third lower high in two decades, ahead of a selling wave that matched 2018's intensity. The decline undercut the 2018 low in March and bounced, but buying pressure dried up one week later, yielding a slow-motion pullback that has now reached within a few cents of the first quarter low.

GE Short-Term Outlook

Price action over 11 years has now completed a massive inverse cup and handle breakdown pattern that will set off another round of sell signals if the stock trades through $5.51. The on-balance volume (OBV) accumulation-distribution indicator is predicting this dismal event because it has already broken a similar pattern, dumping to the lowest low in at least 50 years. There may be no light end the end of the tunnel if GE breaks down, raising the odds that the company will be forced to issue a reverse stock split and seek strategic alternatives.

The Bottom Line

General Electric stock is testing 11-year support for the second time in the past two years, threatening a major breakdown that could presage the company's demise.

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