General Electric (GE) cleared the $31 area on during Tuesday's early trade. This heavy resistance zone had capped the upside for the stock over the last two weeks. With last week's high now taken out, GE is set up well for a fresh rally leg. In the near term, investors should take a much more positive stance on the stock.
The stock fell over 1.6% on July 22, quite a sharp reversal for the stock after reaching new 2016 highs just days before. GE continued to fall over the next five sessions before finding a bottom near $31. The stock spent the entire month of August in a very narrow range just above this key support area. Then, as September entered a second week, GE began a second down leg with another ugly downside gap. By then, GE had taken out its 200-day moving average, opening up the downside in a big way.
As stocks began to ramp post-election, GE left behind a solid base near the October low. Four days later, the stock had recovered its 200-day moving average but was unable to clear the $31 area. This key supply zone marked both the August lows and the Sept. 9 breakdown gap.
On Tuesday, this area was cleared, leaving behind layers of support in the process. As a fresh rally leg develops, GE investors should consider the stock a low-risk buy near current levels. The $31 to $30.50 area is now solid support.
A close back below $30 would violate last week's low, sending a clear warning sign in the process. On the upside, a logical target is GE's nasty breakdown gap, left behind back on July 22 at $32.50.