GE may now be a buy after getting kicked out of the Dow. Here’s why

GE got dealt a major blow this week after getting the boot from the Dow. This looks like a buy to investors with the stomach to endure a bumpy recovery, says one market watcher.

“I would be a buyer, but with a caveat,” Boris Schlossberg, managing director of FX strategy at BK Asset Management, told CNBC’s “Trading Nation” on Wednesday. “I would wait for at least two to three weeks for all the closet indexers to get rid of the stock because I still think there’s going to be some selling pressure on the stock, residual selling pressure, for the next couple of weeks.”

A recovery won’t be a straight shot higher, adds Schlossberg. He advises any new GE investor to forgo instant gratification for the long-term payoff.

“You could really anticipate the stock could maybe wash out below $10 before it really turns around,” he said. “If you’re going to assume a position you have to really be willing to assume some pain in the near term to get some long-term gain over the next five years.”

GE is in the middle of a multiyear turnaround, shedding extraneous businesses to focus on its industrial roots. However, impatience at its progress and worries about the reliability of its dividend have spooked investors. It is easily the worst year-to-date performer in the Dow, of which it had been a component for 110 years, with a 26 percent drop. It has more than halved in value over the past 12 months.

The charts support Schlossberg’s warnings of short-term pain, says Craig Johnson, chief market technician at Piper Jaffray.

“The stock has been trying to find its footing. You can’t on the charts say you’ve found the footing as of yet,” Johnson told Wednesday’s “Trading Nation.” “I would suspect there would be a further washout and I’ll be looking for any sort of indication of a trend change.”

For the moment, Johnson says the downtrend remains intact. Its 200-day moving average has been trending lower since mid-2017. It is currently trading 24 percent below that trend line and broke below its shorter term 50-day moving average at the beginning of the month.

GE was one of the original members of the Dow when it was founded in 1896, but left for a number of years. It has continuously been in the index since 1907. On Tuesday, GE will be replaced by Walgreens Boots Alliance on the Dow Jones industrial average blue-chip index.

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