It looks like General Electric has broken through its long bearish trend. This bearish trend "breakthrough" is not unexpected as GE continues to excel globally in dozens of industries. Now that it has broken through, it might have an income opportunity and here is one example of how the company is leading an industry and continues to bring efficiency and productivity to its clients.
General Electric (GE) has always been about innovation and improvement in technology to make things better and more efficient. As an example, GE has a technology called 'zero liquid discharge' that the company is introducing to India. Realizing that wastewater treatment regulations and reducing water usage have become one of the most critical considerations in industry today, this (ZLD) system eliminates liquid waste streams from plants and produces high purity water for reuse. With its use, water consumption can be reduced by up to 90%!
Not only does the company apply efficiency and energy recovery to water plants, it is also involved in the same core results in gas to energy recovery in manufacturing. Everyone wants to work greener reducing environmental impact. Well, GE is supplying JFE Steel Co. (a Japanese steel producer) with a heavy duty Frame 9E gas turbine system for an innovative steel gas-to-energy recovery project. The new combined-cycle plant will mainly use the steel mill's own blast furnace and coke oven gases to generate on-site power for the mill's operations and significantly reduce the site's annual carbon dioxide emissions.
This is not the first one GE has supplied. It is positioning itself as a global leader in turbine efficiency with its 9E gas turbine technology focusing on steel mills that are looking for a 'gas to energy' recovery projects. It has started projects in a variety of other locations around the world.
- Handan Iron & Steels mill in Handan City, China will receive the same turbines. GE announced this in November of 2011.
- Wuhan Iron & Steel already operates an on-site waste gas-to-energy plant powered by two of GE's 9E gas turbines
GE Energy has a 'cross business' unit that basically takes the best technologies it has and interconnects them the goal of increasing efficiency and results. It continues to become a powerhouse in every area it works in.
As the company has just broken out of a well defined bearish plunge, I expect it to continue to move up but in the present pattern, it will be a slow journey. Through the end of May, into the beginning of June, the RSI and MACD indicators both recorded a positive divergence. This is a good indicator that weakness continues to influence a direction and in this case the bearish move was weakening. Not long afterwards, about mid June, GE stock broke through the bearish trend and has since moved up.
For long term investors looking for ways to make an additional dollar on the stock, this pattern provides a particularly nice option. As you can see, the stock continues to move in a 'peak and valley' pattern. These extreme journeys to high and low points provide the income opportunity. Since the stock has recently reached it high and now appears to be moving down, a Bear Put Spread but with a little twist. Sell the first put (ITM). Here is the play:
The Options Play:
- Buy a September put with a Strike of '20' priced at $1.21)
- Sell a September put with a strike of '19' (priced at $0.76)
- Net Debit to Start: $0.45
- Maximum Profit: $0.55
- Maximum Risk: net debit
- Maximum Length of Play: 3 months
Reasoning behind the Play
- The peak & valley pattern should bring the stock lower now.
- 19 is a good level to trade in because it is in the bearish move zone of the stock
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.