General Electric (GE) shares saw a strong bounce off their August 2015 low and this year began a more measured advance, making a series of higher highs and higher lows on the weekly chart, forming a channel pattern above the rising 40-week moving average.
But the stock failed at its last test of channel support. Now it looks to be going through a trend transition and is likely headed lower.
Jim Cramer, TheStreet's founder and manager of the Action Alerts PLUS portfolio, wrote about GE in his weekly roundup with Jack Mohr on Action Alerts PLUS stocks. "Shares traded lower this week along with the broader market and the industrial sector. Unfortunately, the broader decline throughout the week overshadowed the company's savvy move to merge its oil and gas business with Baker Hughes (BHI) ," they commented Friday. Cramer has a $35 long-term price target on the stock, which closed at $28.44 on Friday.
During the nearly one-year advance that formed the channel, moving average convergence/divergence was tracking lower in bearish divergence to the stock price. In August this year, the Chaikin money flow indicator moved into negative territory.
The July retest of channel resistance proved to be the last of the higher highs, with the stock pulling back and breaking through channel support and the 200-day average in September.
The stock has been attempting to hold near the March low in the $28.50 area, but last week's large bearish engulfing candle, which encompasses the entire range of the previous four weeks, makes the case for a further breakdown and not another bounce.
On the daily time frame, the stock can be seen breaking below the long-term uptrend in September and then immediately begin trading in a small horizontal channel. That channel support line was penetrated in October and a wider trading channel formed below former support-turned-resistance at the $29.40 level and support in the $28.25 area.
This week, the stock opened near the top end of the range and closed near the low, creating the large bearish engulfing candle. A shooting star formed in Friday's session, a daily candle with a small real body situated at the lower end of its overall range with a long upper shadow, indicating the stock was unable to hold its session highs.
Moving average convergence/divergence is relatively flat but making a bearish crossover, and the aroon indicator, which is designed to measure early shifts in trend, made a bearish red-over-green crossover and has maintained a wide spread between the lines. Chaikin money flow has been in negative territory since September, a strong indication that the stock is under institutional distribution.
The price action and the technical indications are pointing lower, and there is little in the way of support at this point on the chart. A large zone of resistance is just overhead. A bounce is not likely, but it would be one that should be sold, while a break below the $29.25 level would also be a short entry point.
In either case, use a position size that allows for an initial buy-to-cover stop above the resistance zone.