GE Shares May Be Ready To Surge

Jul. 17, 2020 2:11 PM ETGeneral Electric Company (GE)88 Comments

Summary

  • Analysts revenue estimates have stopped falling.
  • Options betting has turned bullish in recent days.
  • Meanwhile, trends also are turning bullish on the charts.
  • Looking for a helping hand in the market? Members of Reading The Markets get exclusive ideas and guidance to navigate any climate. Get started today »

GE (NYSE:GE) has been pummeled in 2020, but that may be about to change. In recent weeks, analyst estimates for the company have gradually stabilized after falling sharply in the spring. They are even beginning to rise. It could suggest that the worst is behind the stock, and perhaps shares start rising again.

Options traders are betting that happens, and the stock is beginning to regroup and move higher into the end of 2020. In the meantime, the technical trends are starting to show signs of life, suggesting the stock begins to rebound too.

You can track all of my free stories on SA, on this Google Spreadsheet I have created.

Improving Trends

Revenue estimates fell sharply for the company starting in mid March. But since the middle of June, revenue estimates have stabilized, and have started even to tick higher just a bit. Analysts had been looking for the company to generate revenue of $91.95 billion and $93.98 billion in 2020 and 2021, respectively. Now they see revenue at $79.01 billion and $82.24 billion, respectively.

While sales are still likely to be hurt by the pandemic, and based on estimates, slow to get back to pre-pandemic levels, the stabilization is a positive sign, and perhaps an indication that the company has at least regained its footing for now.

Investors will get more details when the company reports results at the end of July. Currently, it estimated that second quarter revenue fell 40.5% to $17.15 billion. Meanwhile, the company is forecast to have a loss of $0.10 per share, which is down from a profit of $0.11 per share in 2019.

Betting On A Rebound

It could be why someone is making a rather large bet that GE's stock recovery in 2020 and rise. In recent days there has been an increasing amount of activity on August 7, $7.5 calls, with the open interest levels rising by almost 25,000 contracts. These calls were bought on the ASK for about $0.30 per contract. It means that the stock would need to increase to around $7.80 for the trader to breakeven if holding on to them until expiration. That's about 11% higher than the stock's price on July 17.

Additionally, there has been activity at the January 15 expiration date, at the $10 strike price. In this case, the open interest on the calls has risen by roughly 145,000 contracts over the past two days. On July 15, the calls were purchased for around $0.37 per contract, and on July 16, they were purchased for about $0.36 per contract. GE would need to rise by to approximately $10.37 by the middle of January for a buyer of the calls to breakeven.

Technical Trends Turn Positive

The chart shows that the stock has found a bottom of sorts with a support level of around $6.50. Additionally, it appears there may be a reverse and head and shoulders pattern forming in the stock. That's a bullish pattern, and if it is the case, the stock could have further to climb. The first level of meaningful resistance would come around $7.60 per share, then around $8.40.

The relative strength index also is is rising after hitting oversold conditions in March. That indicates that there has been a momentum shift in GE from bearish to bullish.

Risks

There are plenty of risk with GE, like any stock in this market. The economy is fragile, and that means the sudden uptick in unemployment or a pause in the reopening could quickly turn markets lower. It could send GE's stock back to recent lows.

It seems at this point, some are willing to take on some of that risk.

This article was written by

Mott Capital Management profile picture
28.62K Followers
Designed for investors looking for stock ideas and broader market trends.

I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.

I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels. 

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

Recommended For You

Comments (88)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.