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Calling it quits on GE trade and making some observations

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A couple of weeks ago (November 8th 11:00 update on OptionInvestor.com) I wrote an intra-day update when General Electric (NYSE:GE) was trading just above the $40 level. Saying something like "if you can't buy GE here, you've got fuzzy ears, a black nose and claws growing out of your fingers." The description was that of a bear. When I made those comments, I felt General Electric (NYSE:GE) was perhaps a pivotal stock in the Dow Industrials that would launch itself on an impressive run to the $45 level.

Well, that didn't happen as the stock only managed to achieve a high since then of $41.78 and that's a disappointment. I'd be looking to cut that disappointment today with the trade back below the $40 level and keep a loss very small.

General Electric Chart -

Bullish traders have given General Electric (NYSE:GE) and the MARKET a fair opportunity to try and prove my analysis right from November 8th's bullish profile in General Electric (GE), but the anemic response from the stock above the $40 level and today's break back below $40 has me admitting my mistake and moving on. I would also be looking to sell the GE Dec. $40 calls (GELH) here at $1.10 at cut that loss instead of risking expiration below $40. We never got the bullish move to $45 that I was looking for and now must assess risk to the 50-day ma at $38 or midpoint of my regression channel at $37. If I can cut my loss to a very minimum here, I don't fret over the potential unknown of $38-$37 and can focus my attention elsewhere. I also wouldn't mind raising some cash in the account with recent view of the bond market action and what looks to be some near-term rotation taking place back into bonds.

A trader looking for a bearish trade now turns to General Electric (GE) here. We know there is heavy resistance just under $42 and that would serve as a finite stop. With RS vs. the Dow still in a column of O's, it looks as if the stock is still an under performer on a relative strength basis.

Rethinking and taking notes

I not only profiled shares of GE as bullish due to the technicals, but also had in my trading scenario that GE was a very broadly diversified company with a finger in just about every slice of pie for the U.S. and world economies. Today's price action has me stepping back and now wondering if there still isn't some near-term concern for the economy.

Yes, the media talks about it all the time, but I'm a firm believer that the MARKET looks to the future, while what we hear in the media is often times a report of what is currently taking place or took place. However... today's action in GE is "bearish" in my mind, and snaps be back to reality and understanding that economic growth still has some hurdles to jump. Right now, GE isn't jumping those hurdles and it is still a key stock that plays into my broader market analysis.

Is today's action overly bearish? No way! Heck, I'm suggesting traders cut out with a very small loss. If GE had imploded to the $35 level at the time of this writing, then YES I'd be concerned.

It's also been over a week since we started talking about the "overbought" nature of the NASDAQ-100 and the NASDAQ-100 bullish percent ($BPNDX). While GE is not part of the NASDAQ-100 the company certainly has some technology exposure. For me, today's action in GE is one way to look at one stock and make some broader economic observations. That's why this was a "key" stock in my mind to begin with. By making a bet, stepping up to the podium, I couldn't stick my head in the sand and pretend everything was going to come up roses. Traders that were in the stock had a vested/invested interest and a good pulse on things. Today's action tells us their is still a lot of work to be done before the economy and stock market is back in a truly bullish phase.

If you get a chance, go back and read some of the intra-day updates that date back a week or two. I've stressed before that it is helpful for every trader/investor to keep a logbook of their thoughts and observations. Traders that trade for a living should do this daily, while swing traders/investor do it less frequently, it is still very helpful to go back and review some of your notes. What were the scenarios you had laid out? Are they still intact? Those points you made regarding what to look for as a "negative", are they starting to show up, or is this one trade just not working out? What was taking place on November 8th (see archive section) and what has changed, if anything?

Jeff Bailey
Senior Market Technician
Option Investor

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