(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his client's own shares of GE.)
General Electric Co.'s (GE) stock price has had an awful 2017, falling by more than 23 percent, and underperforming the S&P 500 by nearly 35 percentage points. Despite the plunge, some analysts on Wall Street see the stock falling even further, with price targets as low as $21. However, technical analysis suggests the stock may have put in a bottom and could be set to rally by 14 percent, to approximately $27 a share. (See: Sell GE As Earnings Won’t Matter: Deutsche Bank.)
From a technical perspective, it appears the stock may have put in a bottom around $23.50, from September 8 through September 11. GE shares have since rallied by about 3 percent, to $24.15 currently. The bottom put in place seems significant, as it references a support level that has been critical in the past and previously tested in 2014 and 2015. This could be a sign that the stock is set to rise.
Solid Support Around $23.50
The chart above shows clearly just how important the $23.50 level has been in the past and will continue to be in the future. However, should the price fall below $23.50, it seems likely the stock could fall further, by as much as 15 percent, to about $20.
This may be the reason why the recent buying has been taking place, perhaps illustrating that investors believe the worst-case scenario has been priced in. The 5-minute chart below shows that sellers were unable to break the back of the bulls on three occasions at the $23.50 level of support, which is circled in green.
The chart above also illustrates a technical pattern, noted with the red lines, as a falling wedge, which is a reversal pattern. As the chart shows, General Electric's stock has reversed from its previous fall and has started trading higher.
The hourly chart above shows the next area of resistance rests around the $26.50 to $27.00 level, which was created the day that shares of General Electric fell on July 21. That seems to be the area that GE's stock price may navigate to over the next few weeks.
Analyst Revision Stopped Going Lower
It is also worth noting that analysts' earnings estimates for 2019 have stabilized at $1.83 a share, after falling from nearly $2.25 at the beginning of 2017. Additionally, analysts' revenue estimates for 2019 have risen by nearly $3 billion since the beginning of July, to $136.2 billion. This seems like a minor detail, but one that is worth noting.
For now, GE shares appear to have put in a bottom and look set to rise from a technical standpoint, while analysts seem to have put the brakes on lowering 2019 estimates further. But then again, we've been wrong before.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.