Dow component General Electric Company (GE) gapped up more than 5% earlier this week after CEO and Chairman Jeffrey Immelt announced his retirement, with his 16-year reign set to end on Aug. 1. The buying spike reflected Wall Street's hopes that new leadership would take major steps to increase the industrial giant's limp growth trajectory, which has yielded nearly two decades of underperformance compared with blue-chip rivals.  

The stock relinquished half the rally in the following session, in recognition that the required changes may take years to accomplish. Activist shareholders have been pushing management to unlock value by selling off weak divisions and spinning off winners into new securities. Both steps could lift the sagging stock, but the risks are great because it is dangerous for cyclically driven companies to make big changes at the tail end of a multi-year bull market. (See also: GE Considers Sale of Consumer Lighting Business.)

GE Long-Term Chart (1993 – 2017)

 

The stock rallied above the 1987 high in 1991 and entered a powerful trend advance that continued throughout the decade, lifting the company into a market leadership role. The fall of communism and rapid technological advancement underpinned the rally, opening up major growth opportunities around the world. The uptrend peaked at an all-time high just above $60 about six months after the dotcom bubble burst in March 2000, generating a steep downtrend that continued into October 2002.

General Electric stock underperformed throughout the mid-decade bull market, ticking higher in a shallow recovery that stalled at the midpoint of the two-year downtrend in October 2007. It ticked lower into 2008 and plunged during the economic collapse, battered by the implosion of the GE Capital division. Selling pressure finally eased in March 2009 after the stock hit a 17-year low at $5.73, giving way to an uptrend that has underperformed broad benchmarks for the past eight years. (For more, see: Will General Electric Ever Return to Growth?)

It took more than four years for the stock to clear resistance at the 2002 low, broken in 2008, with that technical event failing to stir momentum buying interest. This perennial apathy has generated two horizontal trading ranges in the past five years, interrupted by a single stairstep rally from the mid-$20s to the low $30s in the fourth quarter of 2015. The stock has bounced off new support three times since that breakout while failing in three attempts to hold new highs.

GE Short-Term Chart (2015 – 2017)

 

General Electric stock tested the 2013 high at $28.09 in April 2015 and sold off, bouncing along support in the low $20s ahead of an August 2015 breakdown that washed out selling pressure. The stock charged higher in the fourth quarter, rallying to a seven-year high at $31.49 and dropping into a new range that has persisted into the second quarter of this year. The decline reached a 14-month low in May, despite the long series of all-time highs posted by broad benchmarks. 

On-balance volume (OBV) posted a multi-year high at the end of 2015 and dropped into a steep distribution wave that is still in progress. This signals broad abandonment by institutional and retail shareholders seeking stronger returns in the bull market environment. The Immelt news triggered a slight uptick, but it will take months of buying pressure to restore long-term sponsorship. (See also: Opinion: GE's CEO Choice Pushes the Boundaries.)

Unfortunately for beaten-down shareholders, the stock needs to overcome three major technical barriers to attract greater buying interest. First, it has to rally above the 200-day EMA after five failed attempts to break that resistance level since January 2017. Second, it needs to clear the 20-month trading range with a high volume uptick into the upper $30s. Third, it must complete a 100% retracement back to the 2007 high at $41.

The Bottom Line

General Electric caught a strong buy bid earlier this week after long-time CEO and Chairman Jeff Immelt announced his retirement, effective Aug. 1.  New leadership is likely to implement major changes, but it may be too little too late, given the 17-year string of lower highs and lower lows. (For additional reading, check out: GE's New CEO Faces a Mountain of Hurdles.)

<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>

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