Blue-chips aren't immune from looking toxic right now. General Electric (GE) has the distinction of being the biggest name on our list of toxic stocks today. In spite of a 10% rally year-to-date, shares of the manufacturing conglomerate are starting to look "toppy" thanks to a head and shoulders pattern that's been forming in shares.
The head and shoulders is a price pattern that indicates exhaustion among buyers. The pattern is formed by two swing highs that top out around the same level (the shoulders), separated by a bigger peak called the head; the sell signal comes on the breakdown below the pattern's "neckline" level, currently right below $23.Momentum, measured by 14-day RSI, adds some extra downside confidence to this trade. GE's RSI uptrend broke ahead of its rally back at the start of March, and it's been trending lower ever since. Because momentum is a leading indicator of price, that points to more downside ahead. The sole saving grace in GE right now is the fact that the downside target from this setup is close-by at $22.25 -- but traders should look out for signs of a broader change-in-trend if the neckline break happens this week.
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