Two roads diverge for Dow mainstay amid recent sell-off
11/03/17
On Thursday—nine trading days after a tough earnings release—Dow bellwether General Electric (GE) came close to matching its lowest level since August 2015. November 2 also marked the eighth straight day the stock made a lower low and lower close, something that has occurred exactly…zero other times over the past 30 years.
General Electric (GE) lower lows, lower closes

Source: OptionsHouse

So what’s on deck for the stock?  Well here’s what technical traders are likely keeping watchful eye on:

First, we’re seeing a 50% retracement of GE’s 2009-2016 rally. When a stock retraces around 50% of a significant move, traders often look for a least a temporary rebound. The question many are likely asking themselves now is whether the support implied by the August 2015 low and the 50% retracement will hold in the face of extremely negative market sentiment.

That said, bull contrarians could cite the tendency of sharp price moves to correct, as well as bearish sentiment extremes providing occasionally stellar buying opportunities. They’ll cite the near-term price action as of Thursday as suggesting the potential for at least a temporary respite from the recent selling. And they could dig even deeper and note that over the past 30 years for GE, new 60-day (or longer) lows for GE that are also at least 1% below the previous day’s low have been followed, on average, by net price gains over the next five days.

The action hasn’t been limited to GE shares. Option traders were also out in force on Thursday, with more than 100,000 of both the November and December 22.00 calls changing hands in a few large blocks in early trading.  

But the August 2015 low is a huge line in the sand. Intraday penetration of this level is certainly possible, but a close (or two, or three…) below it could have the potential to trigger stop losses and fuel additional selling.

General Electric (GE) near support

Source: OptionsHouse

GE has increasingly been weighed down by the perception that it is spread too broadly.1 On the fundamental side, third-quarter earnings were down from Q3 2016, missed estimates badly, and the company cut its full-year EPS estimate from $1.60–$1.70 to $1.05–$1.10.  The company’s own guidance offered investors little hope of a significant turnaround in the coming year.2 And given its blue chip prominence, traders and investors alike will no doubt be watching closely as this story unfolds. 

 

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1. SeekingAlpha: GE Is Headed To The Teens And Could Stay There Awhile. 10/31/2017.

2. SeekingAlpha: General Electric's (GE) CEO John Flannery on Q3 2017 Results - Earnings Call Transcript. 10/20/2017.