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General decline has short potential

By John Sheridan

General Electric’s (GE’s) chief claim to fame last year was being the worst performing stock on the Dow Jones Industrial Average, and the troubled conglomerate’s slump shows no sign at this stage of abating. That, of course, makes it worthy of analysis as a potential short. 

Looking at the monthly chart below, we can see that GE’s stock has been in decline for some time. The price topped out in in late 2017, and has since been heading downwards, with the trend confirmed by both the moving average (MA) geometry and the MACD & RSI showing bearish convergence. Along the way, price went straight though support at 23.630 and is now sitting just above another level of support at 14.100.

If we move down to the weekly chart below, we can see that what looks like a straight move down on the monthly chart is demonstrating a smooth flowing price action on this time frame.

Again, we have a confirmed down trend, but on this timeframe the trend appears far more elegant, with the MA fanning out nicely and price appearing to hug the 10 period MA on the way down, occasionally extending away, before pulling back for its next move down.

Our indicators are showing us that this downtrend still has momentum, as we are not seeing any divergence. The type of price action we are seeing on the weekly chart is exactly what we as technical trend-following traders, like to see.  I do not trade on the weekly timeframes, but for those that do, there have been multiple potential trade entries during GE’s downturn.

So with trend agreement on both the monthly and weekly timeframes, let’s take a look at the daily chart and explore what our options are for potential shorts. On the daily chart we can see that the trend still looks tradeable, with price just making a lower low and the MAs again in their optimal geometry.

We are also converging on the MACD with the RSI making an equal low. As the RSI is not diverging, I’m still happy to consider shorting GE on this timeframe. With price just above a support level, one potential play would be to wait for a consolidation just above the support level and then potentially look to short on the break. In the event that the breakout is missed I would be looking to trade either a pullback to that level or a pull back to the MAs.

So GE is definitely on the watch list and has the potential to be a good short trade if it gets below 14.100 and we get a valid setup.

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