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General Electric Can't Fight The Trend

08/26/04 10:28:05 AM
by Andrew Hetherington

General Electric (GE) is the only original Dow component from inception. How is this venerable stock competing with the newer companies?

Security:   GE
Position:   N/A

Recently we've seen a shuffle of the Dow with AT&T out and Verizon being inserted as a new Dow member. This is good for Verizon and not so good for AT&T, with the increase in demand from the index funds for Verizon stock.

Currently there is a small 2-month ascending triangle with a breakout on the downside forming on GE's chart. Normally, these triangles have a bullish tendency, which accounts for the confusion in the market right now. I sense, especially after today's activity, that traders are unsure which direction the trend is going. The trend is currently short and on the pullback. Many equities have formed bullish patterns and broken on the downside, as is the case with GE and Merck. Others, like Juniper and Nortel have created descending triangles and are now ready to be shorted off of the top line of the triangles before the downside breakout. In any case, GE is a prime-shorting candidate for a small trade in the $33.00 area.

Graphic provided by: SuperCharts.
Keep in mind that this is a small pattern and if you are profitable you must close out your position at the first sign of danger. The support in the $31.00 area will be the initial hesitation. This may or may not be the resting points so watch the $30.00 and $29.00 supports if it goes through this line. As always, cover your short on any high volume-dropping day. Timed correctly, this can be a profitable option trade. The September $32.50 puts will likely be available for 20-25 cents. If I've made a good prognostication, then these will easily triple. These are good "pot odds" as I like to say and definitely worth the risk.

Andrew Hetherington

Classic Dow Theorist who trades as a pure technician, using pattern recognition.

Toronto, Canada

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Date: 08/26/04Rank: 4Comment: 

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