General Electric's Breakout - How to Trade the Rally

General Electric is ripping higher on earnings but is it too late to buy the stock? Here's what to do with the breakout now.
Author:
Publish date:

Shares of General Electric  (GE) - Get Report were shaking off the market volatility on Wednesday, surging 10% on better-than-expected quarterly results.

Sentiment may be mixed, but the charts sure aren’t. GE stock continues to look better and better as the weeks wear on. Due to its earnings and subsequent breakout, General Electric made an excellent choice for Real Money’s Stock of the Day.

GE beat on earnings and revenue expectations, while industrial free cash flow (FCF) of $2.3 billion topped its already raised 2019 outlook for zero to $2 billion in industrial FCF. Management’s 2020 outlook for industrial FCF easily topped estimates, at $2 billion to $4 billion vs. expectations of $1.2 billion.

Management’s confidence is giving investors confidence as they continue to bid the stock higher. Let’s look at the charts.

Trading GE Stock

Daily chart of GE stock. 

Daily chart of GE stock. 

When the markets sold off hard on Monday, with the S&P 500 losing about 1.5%, GE shares slipped just 2.3%. While that underperformed the market, it was an impressive showing in my view, given that many still consider this a subpar name, fundamentally speaking.

It’s true that GE lacks the fundamental firepower that many of its peers have, but its technicals look darn good. There were clues on Monday’s selloff too, after General Electric stock held channel support (blue line) and the 50-day moving average.

Now on its post-earnings rally, shares have erupted through $12.25 resistance, as well as channel resistance. Where does that leave the stock heading now?

Let’s see if the stock can close above $12.83, which is the 1.236% extension from the October gap-up to the most recent high (before Wednesday rally). Above this level puts $13 on the table, with the 1.382% extension up at $13.21.

More importantly though, I’d like to see GE stock hold up above the $12.25 level. Not only was this mark notable resistance in January 2020, but it was a vital level of support that ultimately failed in mid-2018. Holding above it now would keep bulls in the driver's seat, even if shares do endure a near-term pullback.

So what’s the bottom line? Above $12.25 is bullish, while below could trigger a post-earnings gap fill down to $11.75. Over channel resistance and $12.83, and the $13 level and the 1.382% extension at $13.21 are possible short-term upside targets.