GE Charts: Intermediate Term Promise of Profits
In 2008 and 2009,
General Electric
(GE) - Get Report
suffered greatly due primarily to its financing arm which faced huge losses. Those uncontrolled losses created a cloud of uncertainty over the company. Although not all of GE's problems are entirely behind it, the fundamental and the technical picture have improved greatly. If we look across the three time frames, on a technical basis, GE appears poised to provide some profitable trading opportunities given the right purchases and the correct time frame expectations.
Before diving into the charts, it is important to reflect on that last statement. Over the past two weeks, the markets have been rocked once again with large price declines that have necessarily changed the short-term time frame of the major indexes from suspect bullish to confirmed sideways. This is the first "directional trend change" since the March 2009 lows and thus they're significant.
As a trader, there is no reason to completely abandon the thought of buying stocks, but you can no longer do so without impunity. When the market changes direction on a given time frame, you have to adjust your trading on the affected time frame and potentially on all other time frames as well.
For example, on a short-term time frame, shorting bounces rather than buying dips is likely a more profitable strategy now, whereas before it was suicidal. As another example, if you want to accumulate positions longer term there is nothing to suggest that that's the wrong trade. But you do have to adjust your entry and exit (stop and profit) orders to fit a longer-term view, not the short term. If you don't, you will almost certainly experience a larger number of trades that fail.
With that preface, here's a long-term chart of GE.
We look at the long-term chart first to develop the larger trading boundaries for the stock. With GE, support looks strong at the $11 to $12.50 range while resistance is apparent starting at the $22.50 level.
Ever since that hammer blow off reversal, when the fear was great that not only GE but many companies would cease to exist, GE has worked higher changing its trend from confirmed bearish to confirmed sideways.
Pulling the chart in some to the intermediate-term timeframe, which is what you should be expecting to trade for the coming weeks, we can see a channel trade that has developed.
The top of the channel is in the $17 to $17.50 range while the bottom is from $14 to $14.50. In a channel trade, you want to sell near the top and buy near the bottom for the greatest reward-to-risk trade as well as the highest chance of a successful trade. For the trade to be worthwhile, the channel needs to be a large enough percentage (top to bottom) to make the risk worthwhile. In this case, it is.
Note that on this time frame the trend is confirmed bullish so you want to trade from the long side of the trading equation. That means you should buy near the bottom and take either all or partial profits at the top end of the channel.
On the short-term time frame, if you consider the concept of scaling into the trade, we can see two defined areas where scale purchases could be made (highlighted on the chart).
A third is at the bottom of the channel as seen previously on the weekly chart. If purchases are made in these areas, from a risk perspective, you have to take stop losses if the bottom of the channel is violated on a closing basis, especially if that occurs on volume. The 995 million shares weekly bar on Sept. 14, 2009, is the benchmark with a low at $14.22. You cannot allow a close below $14 without taking stops.
The reason for this is because a violation of that channel zone tells you that the probability of prices retracing all the way back to the long-term ideal buy zone of $11 to $12.50 is higher and that there's no reason to stand in the way of the further declines. The better trade is to take the loss and look to re-enter at lower prices. If it turns out to be a false break, then you can try again once that becomes clear.
GE holds good promise for some profitable trades on an intermediate-term time frame by trading a channel trade.
So until next time, just keep trading the charts!
At the time of publication, Little had no positions in the stock mentioned, though positions can change at any time.
L.A. Little, author, professional trader and money manager, writes daily on
www.tatoday.com
, a free educational site for traders and investors. He has been featured in numerous publications and is the author of
.
His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.