GE needs to fall another 25% before bulls are safe to buy, technical analyst says

FAN Editor

General Electric is in trouble again.

Shares tumbled more than 5% last week, caught up in a broad market sell-off and as GE bear Stephen Tusa of JPMorgan warned of weakness in its aviation unit. The stock is down more than 20% from a February peak.

On Monday, GE stock initially shot higher after the company announced it is freezing pension plans for about 20,000 U.S. employees. The stock later surrendered much of the premarket gain.

Bill Baruch, president at Blue Line Futures, said Friday that GE has been in an “ugly situation” for quite some time. However, he does see one level of support that could form a bottom to its decline.

“If you take a look at the chart of the last year, going back to the December low, there is a trend line down there, around $8 and that could bring some support,” Baruch said on CNBC’s “Trading Nation.”

Still, it could collapse through that floor to return to its lowest level in a decade, according to Baruch. For any GE bull, a decline to that level could be a buy signal, he adds.

“We’re going to see some further pressure potentially,” he said. “Where could you buy it? If you believe that the sum of its parts is worth more than this price here, … look back to 2009. You have a trend line in 2009 hitting that December low, that comes in around $6, $6.50 or so. So $6.50 is where you can look for the long term.”

GE would need to fall by more than 24% to reach $6.50. It traded at that level in December.

Recent slowing in the global economy makes value cyclicals such as GE less attractive to Steve Chiavarone, portfolio manager at Federated Investors.

“In order to really like the value cyclicals you have to be believed that the global economy is on the verge of reaccelerating. We think that can happen in early 2020. But we think we’re a ways away. We’re still in a period of slower growth and increased stimulus. We don’t think that bodes well for value cyclicals,” Chiavarone said during the same segment.

On GE, in particular, Chiavarone says it’s not worth the potential downside to make a bet on the beaten-up stock.

“Quite frankly, we think there’s just easier places to make money, cleaner stories. If you want to play a cyclical trade here, we think GE is a little bit difficult,” said Chiavarone.


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