Chart of the week: A Dow original begins resurgence
It's struggled for a couple of years, but this famous company's stock is looking attractive again.
21st October 2019 11:28
by John Burford from interactive investor
It's struggled for a couple of years, but this famous company's stock is looking attractive again.Â
Can General Electric spark renewed investor interest?
Formed in 1892, this famous US company is the last surviving original member of the Dow Jones Industrial Average, which first saw life in 1896 at the start of the Electric Age. In its day, General Electric (NYSE:GE) acted just like one of today's high-flying tech issues. Â But this lumbering giant has recently fallen on hard times as it has a massive problem in the pensions liability to its army of former workers.
But is all the 'bad' news now in the price?  After all, the shares have collapsed from $32 two years ago to a recent low of just under $7 – a hefty loss of around 80%.  So, can I add this to my Buy Low/Sell High list?
Let's take a look at the long-term weekly chart:
Source: interactive investor Past performance is not a guide to future performance
The stand-out feature is the possible Double Bottom pattern that is a reversal pattern – if genuine.  Not only that, but the move off the 2016 high appears to be a complete impulsive Elliott wave to the fifth-wave low last December at the $6.70 level.
Not only that, but there is a stark momentum divergence at the third and fifth-wave lows that strongly suggests the buying power is slowly taking over.
Let's take a look at that decline on the daily chart:
Source: interactive investor Past performance is not a guide to future performance
Note the momentum divergence also on this scale to the December low – a potentially very bullish factor.  And off that low, the market has risen in the longest rally phase since 2015.
But note the potential for a classic Head & Shoulders reversal with the Right Shoulder at the August low at $7.70. Â So, I have two potentially powerful independent reversal patterns at work. Hmm.
If the support there can hold, the market has every chance to continue advancing towards the 'neckline'Â around the $9.50 - $10 zone.
And breaking above that would set the H&S reversal in place and project a first target around $15. Â With downside limited to $7.70 and minimum upside at $15, the current $8.75 presents a very favourable reward/risk ratio.
For more information about Tramline Traders, or to take a three-week free trial, go to  www.tramlinetraders.com.Â
John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.
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