General Electric Testing 2009 Bear Market Low

General Electric Company (GE) has pummeled shareholders and dip buyers alike since the start of 2017, dropping nearly 80%. This year's 60% haircut has been especially painful because many analysts had predicted a recovery year that would lift shares of the former industrial giant back into the $20s. Clearly, that hasn't happened, with the stock now trading in the single digits, nearly 50% below the plummeting 200-day exponential moving average (EMA).

Even so, there's potential good news on the horizon – if that's possible for the company formed by the merger between Edison General Electric and Thomson-Houston Electric in 1892. The stock is now trading just one point above the capitulative low posted at the end of last decade's economic collapse. This marks a significant support level that could generate a healthy bounce back into the double digits.

GE Long-Term Chart (1994 – 2018)

Long-term technical chart showing the performance of General Electric Company (GE) stock

The company traded on the Dow Jones Industrial Average from 1895 until it was kicked out of the venerable index in June of this year. An uptrend that started during the Reagan years accelerated at the start of 1995, adding to a long streak of yearly gains into August 2000's all-time high at $60.75. The stock price got cut in half when the internet bubble burst, bottoming out in the low $20s in October 2002 and testing that support level in February 2003.

The subsequent uptick completed a double bottom reversal, yielding modest upside into 2004 when buying pressure fizzled out in the mid-$30s. It cleared resistance in 2007, reaching the lower $40s at the October top, and rolled over into 2008. The sell-off escalated into a full-scale panic in reaction to GE Capital's solvency issues, generating a capitulative low at $5.73 in March 2009, while the subsequent bounce booked nearly 400% gains into the first quarter of 2011.

The stock resumed its uptrend in 2013, posting modestly higher prices into July 2016, when it topped out at $33.00. It then eased into a narrow topping pattern with support in the mid-$20s, finally breaking down in July 2017. The subsequent downtrend has unfolded in three selling waves, with downside pressure easing between March and October 2018 and picking up steam into December. The monthly stochastics oscillator has now been glued to the oversold level for more than 18 months, signaling major wealth destruction.

The price structure since July 2016 has carved an extreme Elliott five-wave decline, with the capitulative fifth wave now in progress. A Fibonacci grid stretched across the 2009 to 2017 uptrend is revealing, with selling pressure easing between the .618 and .786 retracement levels. All hell broke loose after the stock violated the lower support level, cascading into a vertical trajectory that is common between .786 and 1.00 retracements in both uptrends and downtrends

Fractal behavior may also be at work as 2018 comes to an end. Look at the sell-off's intensity after General Electric broke a three-year topping pattern in the mid-$30s in 2008 and compare that price action to the stock's downturn since December 2016 (red lines). The current decline has lasted longer than the prior event but has unfolded at a similar angle of attack, suggesting that the downside could finally end in the coming weeks.

More importantly, this alignment raises the odds that the subsequent bounce, whenever it comes, will unfold at a similar trajectory as 2009 and 2010. That buying impulse took 13 months to travel from $5.73 to $19.70, more than tripling in price. Of course, no two patterns carve identical price action, but battered and bruised shareholders should consider the possibility that 2019 and 2020 will offer much higher prices to dump radioactive long positions.

The Bottom Line

General Electric stock is now trading just one point above support at the 2009 bear market low and could bounce near that level, posting modest to impressive gains in 2019 and 2020.  

<Disclosure: The author held shares of General Electric in a family account at the time of publication.>

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