General Electric – Biggest bull trap of 2019

Shares of General Electric were down big today after negative statements on free cash flow for 2019 from the company’s Chief Executive officer Larry Culp. Culp shared that the company’s “free cash flow would be negative for 2019,” highlighting its struggling power business.  

Industrial free cash flow has gone from 7.7 billion in 2015 to 4.5 billion in 2018 and now a forecast for negative cash flow for 2019. The company did state that cash flow should get better into 2020 and 2021, although no detailed turnaround strategy was issued.   

   JP Morgan’s Stephen Tusa is a well-respected street analyst on GE.  He made a name for himself covering the stock in 2016 by putting a bearish note on GE when the stock was trading above $30.00, stating some of the current problems GE is facing today.  Currently, Tusa has a $6.00 dollar price target on the stock which he feels is a “generous” target. The stock is down over 10% in the last two trading sessions.

   General Electric has been a long time favorite for pension funds and institutional investors. Investors traditionally flocked to the American staple for its dividend and at the time, its sound business model. General Electric cut its dividend in October of 2018 from .12 cents per share quarterly, to .01 cent per share.  This sent the stock tumbling down as analysts swooped in with downgrades and sell recommendations. As of late, the stock is feeling less like an American staple for growth and more like an investing bull trap.

Above is the weekly chart for GE.  You can see the major downtrend that began just before 2017.  Prices found resistance last week at the 50 week Simple Moving Average.  JP Morgan’s Stephen Tusa came out with his original bearish stock call on GE in May of 2016, when the stock was trading over $30.00.  He came out in October of 2018 with his new revised price target of $6.00.

Above is the daily chart of General Electric’s stock price.  After a huge move lower in the fourth quarter of 2018, the stock went on a corrective move higher, notching in a three-month rally.  After Tuesday’s price action, the stock broke down through its upward channel and through the $10.00 level. After the fundamental news that broke today, it looks like GE could be heading back to take a look at the December 2018 lows just below 6.50.     




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