Will General Electric Rally 50% as J.P. Morgan Turns Neutral?

General Electric is struggling to rally despite its biggest bear - J.P. Morgan - lightening its stance. Here's the trade in shares of GE.
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General Electric  (GE) - Get Report shares opened higher by about 1% on Monday, and after a quick dip into negative territory they have gained speed, rising about 2.5%.

The rally comes as General Electric’s biggest bear lightens up on the stock. Just last week, J.P. Morgan’s Stephan Tusa criticized the company’s free cash flow while maintaining his sell rating and $5 price target.

He’s now changing his tune, lifting his rating up to neutral and his price target up to $8. This isn’t the first time Tusa has lightened up on GE stock either. In December 2018, when the broader markets were getting crushed, Tusa raised his rating to neutral from sell.

It sparked a massive rally in the stock, ultimately sending it from the mid-$6 range to $10. With Tusa moving from bearish to neutral, it’s no wonder it caught the attention of the Real Money team, which named GE as its Stock of the Day.

Let’s look at the charts.

Trading GE Stock

Daily chart of General Electric stock.

Daily chart of General Electric stock.

Can investors expect the same type of rebound in GE stock due to Tusa’s move? After all, just like in late 2018, General Electric shares and the broader market have been under intense pressure.

Despite that, I do not expect a quick 50%-plus move like we saw from the December 2018 lows.

While the recent decline in the stock price correlates with the market’s decline, the narrative is different this time. In December 2018, traders were beginning to price in the end of days for General Electric. Now it’s just hesitation over whether it can deliver on free cash flow and how the Boeing  (BA) - Get Report 737 MAX situation will impact its results. Investors believe in CEO Larry Culp and aren’t pricing in a bankruptcy anytime soon.

But that doesn’t mean the stock is out of the woods.

Long-term uptrend support (blue line) ultimately held as support last week, while GE stock has quickly reclaimed the 200-day moving average. However, it’s now struggling to reclaim its 100-day moving average.

The plus side is that we now have a very well-defined trading range. On the downside, bulls need to see the 200-day moving average and uptrend support hold as support. Below puts the recent low near $10 on the table.

On the upside, investors will want to see GE stock reclaim the 100-day moving average. If it can, it puts the 50-day moving average and short-term uptrend support level (purple line) on the table. Keep in mind, these levels may act as resistance if the stock gets there. 

If General Electric gets to these upside marks and fails to reclaim them, look to see if the 100-day moving average acts as support. If the stock does reclaim these marks, $12.50-plus is on the table.

Now more than ever, it's important to take stocks from level to level, and keep our trade sizes appropriate for the given environment.