GE Starts To Falter

12/14/06 08:10:10 AM

by Arthur Hill

GE has underperformed the S&P 500 since mid-October, and relative weakness increases the chances of a support break.

Security: GE
Position: Hold

The weekly chart (Figure 1) shows that the big trend is up. The stock surged in 2004 and peaked at the end of the year (December 2004). GE then embarked on a long correction that extended until July 2005 (18 months). The decline formed a falling wedge and the wedge breakout in September signaled a continuation of the 2004 advance. The breakout targets a move above the prior highs.

FIGURE 1: GE, WEEKLY. This stock surged in 2004 and peaked at the end of that year before embarking on a long correction that extended until July 2005.

Graphic provided by: TC2000.com.

Graphic provided by: Telechart 2007.

Even though the long-term trend is up, the stock is stalling on the daily chart (Figure 2), which could spell trouble. GE surged from July to early October and then formed a triangle over the last few months. There is a lower high in mid-November and a higher low in early December. This triangle represents a consolidation and the direction of the breakout will provide the next signal. A move above the upper trendline would be bullish and a move below the lower trendline would be bearish. The stock consolidated around 35–35.5 at the end of November and the beginning of December. This established support at 35, and I would view a break below 35 as bearish.

FIGURE 2: GE, DAILY. Even though the long-term trend is up, this stock is stalling on the daily level, and this could spell trouble.

Graphic provided by: TC2000.com.

Graphic provided by: Telechart 2007.

GE led the Standard & Poor's 500 higher from July to early October but has shown relative weakness over the last two months, and this is negative. The price relative peaked in mid-October and moved to a new low over the last few months. In fact, the price relative moved below its July low and this shows excessive relative weakness. I added a 30-day moving average to the price relative (red line). It is clear that GE performs best when the price relative rises and worst when the price relative declines (gray vertical lines). As long as the price relative remains below the 30-day moving average, GE remains relatively weak and this increases the odds of a support break at 35. Look for an upturn in the price relative and moving average break to confirm a triangle breakout in the stock.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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