Trade Recommendation: General Electric

Technical Overview

  • Throughout most of 2016, General Electric was completing large topping patterns (support-turned-resistance trendlines – green lines in Figure 1).
  • In July 2017, the stock broke below $27 and began to move sharply lower. The decline intensified further in October 2017. Since then, a key resistance has been taking prices lower (resistance – red trendline, retests – red arrows).
  • Since March 27, the stock has formed a triple bottom in the $12.70 – $12.80 area (violet horizontal trendline).

Figure 1. GE 2-Day Chart

Implications

  • A move above the interim high of the first two lows ($13.95) of the triple bottom will confirm the completion of the pattern, with a minimum price target of $15.20.
  • Given the significance of the red trendline, a break above it is expected to carry prices to December 2017’s low ($17.20). This level, which originally marked an important minor low, subsequently turned into resistance once broken in January 2018 (support-turned-resistance – orange horizontal trendline and orange arrows). This target should take precedence over the target obtained from the triple bottom pattern.

Outlook

  • Neutral with a bullish bias while the stock is trading between $12.70 and $14.
  • Bullish if the stock closes above $14
  • Potentially, short-term bearish if the stock closes below $12.70. Besides the recommended trade below, one may implement a strangle buy. However, given the bullish bias on the stock, a simpler “stock buy” strategy is suggested at this time.

Trading Recommendation

  • Buy upon a close above $14.
  • Target: $17.20.
  • Stop: A close below $12.70.

Benefits of Recommended Trade

  • Entry based on a confluence of “buy” signals (i.e. a break above a major resistance and a triple bottom pattern completion).
  • A satisfactory risk-reward ratio (1:2.2), assuming a $14.07 entry (0.5% above the $14 trigger), a $17.20 target and a $12.63 exit (0.5% below the $12.70 stop). The entry and exits vary from the recommendation figures as the stock will likely push higher/lower by EOD after breaking $14/$12.70, respectively.

Featured image courtesy of Shutterstock.

Tags:
Author:
http://www.linkedin.com/in/konstantindimov