You know the situation is dire for a company when its stock rallies on bad news. This is the case with General Electric Company (NYSE: GE).
On Monday, the company announced that it was changing CEOs. Jeff Immelt is out, H. Lawrence Culp Jr., former CEO and president of Danaher Corp., is in. GE stock investors were beside themselves with the move.
Immelt has been accused of not moving fast enough with his turnaround of the company. So, when it swapped him out for Culp yesterday, the stock surged nearly 15 percent on the open.
The financial media headlines were filled with bullish stories about how this shift from a long-term plan to a more immediate outlook with Culp would benefit the company.
However, investors largely ignored a rather important bit of news that arrived alongside the CEO shift. GE said it would miss this year’s earnings forecast and that it’s taking a $23 billion charge related to its power business.
Lower earnings and a $23 billion charge. That’s quite a large chunk of money on a business that was supposed to be one of the company’s core units.
It’s proof that the problems at GE are much larger than many investors are anticipating. It’s also proof that no matter what Culp does, the company is still a long way from turning around.
Getting Technical on GE Stock
Looking at the stock’s intraday activity Monday is proof that some investors are paying attention. The shares quickly surged roughly 15 percent to about $13.
The rest of Monday’s activity was all selling, with GE stock finishing just above former price resistance at $12. As you can see from the chart, it also was unable to hold support above its 50-day simple moving average.
This week’s price action on General Electric is typical for a stock that is widely held despite a negative sentiment backdrop. GE stock is especially popular among millennials and Robinhood users. This significant retail following gives the stock a near cult-like status that is prone to sharp moves following major news headlines.
And yet, the vast majority of Wall Street analysts have black-listed the company’s stock. According to Thompson/First Call, 10 of the 17 analysts following the company’s stock rate the shares a “hold” or worse.
Even speculative GE stock options traders were hesitant to jump on Monday’s bullish bandwagon. Options volume on the day came in at about 788,000 contracts for GE.
That activity was split nearly evenly between puts (bets the stock will go down) and calls (bets the stock will go up). When high risk options speculators are divided on a stock’s direction, the situation is far from ideal. It means increased volatility for GE stock, and headaches for stockholders.
The Bottom Line
When it comes to trading GE, following Wall Street’s lead might be the best option for now. Culp isn’t going to be the savior investors want. Faster moves on its turnaround risk more mistakes and more potential billion-dollar write-downs.
In short, General Eletric stock is going to bounce around for a bit following this news. It may even attempt another rally. But price resistance at $13 and GE’s 50-day moving average are likely to keep any such rally in check for the time being.
Traders looking to profit from GE might consider buying puts or fading any rally to these resistance levels. Long-term bulls with a stomach for risk might consider buying pullbacks amid this volatility, but with the reminder that GE stock’s losses are not over yet.