General Electric Company (GE) is an iconic company that was one of the 12 original members of the Dow Jones Industrial Average when it was formed in 1896, notes Joon Choi, technical expert and contributing editor of Signalert's Systems & Forecasts.

The company was ranked the 13th largest firm (measured by annual gross revenue) in the U.S. in 2017; nevertheless, its stock price is in a downward spiral. In fact, GE has fallen 12 consecutive months, which is the longest monthly price drop in its history.

Even in the financial crisis, GE recorded only 7 successive monthly losses. However, the bottom may be in place for a great profit potential and I will discuss the technical reasons behind my conclusion.

GE reported a $1.14 loss for EPS (earnings per share) in its most recent quarter as the company is in the midst of restructuring. GE’s negative earnings outlook led to slashing their dividend from $0.24 to $0.12 a quarter.

The current dividend yield stands at 3.3% which is almost double that of SPY (1.7%). Unfortunately, the trailing twelve-month earnings are negative; hence, its P/E ratio is also negative.

Since the stock market lows in March 2009, GE had been outperforming the SPY up until October of last year (Chart 1). However, the performance gap started to close sharply in the earlier months of 2017 when the stock prices started to fall as the overall stock market rose.

chart 1

One of the best ways to determine whether a trading vehicle may have bottomed is by observing momentum indicators such as MACD and RSI. As shown in Chart 2, GE’s price has been falling the last few months while the 12-26 week MACD has been forming a double rising bottom over time (which is preferable to a shorter period).

chart 2

Furthermore, GE’s monthly chart (Chart 3) reveals that the stock recently bounced off a key support level at $14. Another sign that GE may have hit a bottom is that monthly RSI has dipped below the oversold level of 30 and has turned up this month (point B); which is similar to March 2009 when the RSI turned up after falling below 30 (point A).

chart 3

After the monthly RSI turn up in 2009, GE was up an impressive 34% after 2 months, 63% after 6 months and 85% after 13 months (Table 1). The returns above are higher than SPY’s for the same period (19%, 31%, and 36% respectively).

chart 4

General Electric is the latest example of why good leadership is so important for a company to thrive; especially for a large and old company.

Their inability to keep up with the ever-changing business environment has led to wiping out more than half of its market cap over the past 12 months. However, I believe the stock has fallen too much and may be due for a sharp bounce.

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