It’s almost like its 1999 all over again for many stocks, but that has not been the case for General Electric Company (NYSE:GE); well almost, as I’ll explain below. The good news is GE stock is finally in technical position to begin bringing good things to life for bullish contrarian investors as Wall Street braces for the worst. Let me explain.
As any GE stock investor can attest to, it has been a long while since bragging rights have been a part of the conversation. In just 2017 alone and as the broader markets have been reaching all-time highs as part of an extended run that almost puts the Dot.com bubble to shame, GE stock has shrunk by a menacing 37.5% or a slightly less punishing 33% when factoring in the yearly dividend payout.
So, things could be worse, right? Well, maybe, but maybe not. In recent weeks since announcing its disappointing earnings miss and reduced guidance, GE stock has reversed a miscued “buy-the-news” reaction and continued to get slammed to new year-to-date lows.
What’s behind the unending pressure in shares of General Electric?
In large part it’s easy enough to surmise investors are collectively preparing for the worst, i.e. a “severe dividend cut.” Income investors’ sacred cow is about to get stingy in the mind of Wall Street. And there’s little doubt they’re wrong on this point either.
It’s not a secret at this time that GE’s businesses need to improve. In turn, cash flows and revenues to help items like being able to support the company’s substantial debt and underfunded pension obligations. So despite management’s pledge of the dividend being a priority following its earnings report, investors have been busy pricing in the event. And that’s expected to happen at Monday’s Analyst Day meeting.
But will it be enough for shares of General Electric to find a bottom? On paper and according to some analysts like Cowen & Co., the answer appears to be no. But as the market can be a forward-looking and optimistic opportunist at times, and given some key testing on the GE stock chart, I can’t help but see GE as a bullish contrarian play.
GE Stock Monthly Chart
I last wrote about GE stock following earnings in late October, and our technical prognosis wasn’t good for bullish investors. Shares had broken the key 62% Fibonacci support level tied to 2015’s Flash Crash bottom and appeared ready for another leg down.
Now though and after having fulfilled that financial obligation, GE has shaped up into a decent-looking reversal candidate.
Supporting this contrarian view, is an oversold monthly chart based on stochastics, price action outside the Bollinger Band, GE stock’s testing of the Flash Crash low of $19.37 and 50% retracement level from 2009’s financial crisis bottom — and maybe the irony of shares at $19.99 as the broader market parties like its 1999 all over again.
GE Stock Speculative Long Call
Courtesy of OptionVue.com
Given what has been addressed, I like the idea of embracing a “buy-the-news” upside reaction. However, I also don’t like the idea of holding the bag if the dividend cut isn’t fully priced in.
After reviewing the options board in GE stock, the Nov $21 call for 18 cents is one favored way that meets these criteria for bullish traders willing to play a slightly more speculative position given the position’s time constraint.
Bottom line, it’s obvious that traders are readying for Monday’s Wall Street meeting as premiums are pumped, though trading in line with an increase in volatility in shares.
And for less than 1% of GE stock risk, this play offers one way, albeit very short-term, to capture significant profits if option traders are correct in pricing in a large move — and the direction of that reaction is up.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits and feel free to click here to learn more about how to design better positions using options!
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