4 Trade Ideas for a Turnaround in General Electric: Bonus Idea

Here is your Bonus Idea with links to the full Top Ten:

General Electric, $GE, was a true Dog of the Dow in 2017 with its stock losing over 45% of its value. Traders and investors alike could not get out fast enough the last 6 weeks of the year as the company cut its dividend. Suddenly the company formed in 1892, from the merger of a company founded by Thomas Edison with another company, and the only remaining initial member of the Dow Jones Industrial Average from 1896, was one that no one wanted.

This is often the perfect time to make a value investment. There are usually two questions that need to be answered before that happens though. The first is for the value investor, will the company survive? This seems to be true for GE. The value investor might just buy with that. The second is for the price conscious investor or technician, has the price stopped falling and reversed? The chart gives some suggestion that the answer to this second question might also be yes now.

After the final dump on news of the dividend cut (see the November volume spike) the stock drifted lower for a day or so. But for the last 6 weeks it has moved sideways in consolidation. Last week it started moving higher with the broad market, ending the week at its first higher high since the bottom. It also moved over the 50 day SMA for the first time since October. It could not close there though.

Momentum is building and supports more upside. The MACD crossed up and started higher in November. It is now nearing a cross to positive. The RSI started up off of an oversold condition in last week, and ended in the bullish range. The Bollinger Bands® had squeezed starting in mid-December, and are now opening to allow a move. The next resistance to the upside is from 20-20.50 and then 23-23.60 before 25.25 and then 26 and 27, with more prior volume showing up from 28 through to 32. A move from 19 to 28 is nothing to sneeze at.

The January options chain suggests a $1.22 range by expiration which happens to be the same day that the company is expected to report earnings. Open interest is largest at the 17 strike Put and then big at 18, 19 and 23. On the Call side it is very large at the 18, 19 and 20 strikes and then close at 21 as well. Further out in March the open interest on the Put side is spread from 17 to 25 and on the Call side rises from 18 to a peak at 20 then drifts lower to 25. January 2019 options are focused from 15 to 25 on the Put side and bigger on the Call side from 20 to 30.

General Electric, Ticker: $GE

Trade Idea 1: Buy the stock on a move/hold over 18.50 with a stop at 17.60.

Trade Idea 2: Buy the January 19 Calls (14 cents).

Trade Idea 3: Buy the March 17/19 Bullish Risk Reversal (30 cents).

Trade Idea 4: Buy the January 2019 Expiry 20 Calls ($1.34) and after the earnings report sell monthly Calls at strikes 5% above the money each month.

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After reviewing over 1,000 charts, I have found some good setups for the week. This week’s list contains the first five below to get you started early. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which with the first week of the New Year under our belts sees the equity markets looking spectacular, and maybe they have run a bit too far too fast.

Elsewhere look for Gold to continue in its uptrend while Crude Oil may pause in its move higher. The US Dollar Index is weak but may be finding support while US Treasuries are biased lower in consolidation. The Shanghai Composite and Emerging Markets have both broken to the upside in a strong manner out of consolidation.

Volatility looks to remain very low keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their charts agree on the longer timeframe, with the SPY and QQQ very strong and the IWM just starting to break out. On the shorter timeframe the SPY and QQq are overbought and may need a pause, perhaps giving rise to rotation in to the IWM. Use this information as you prepare for the coming week and trad’em well.

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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