The Dow has lost over 6,800 points since its record close of 14164.53 hit on October 9, 2007. That's less than two years ago. There was a time when a fall below $10 a share of a company listed on the Dow meant humiliation.
Today, five of the index's 30 components are trading under that price, including its two oldest members, General Electric (parent of CNBC) and General Motors. Just this past Monday, GE hit a 14-year low, dropping below $9 over concerns about its real estate holdings. And GM, well, it's enough to say the once venerable automaker is in trouble.
One could say GE and GM are staging a general retreat. Investors aren't laughing though, and many Charting Asia readers have requested a chart of GE. You get your wish this column.
GE is a lazy stock that has fallen out of its slumber. For a prolonged period, it traded in a broad band between $32 and $38. No excitement there in terms of capital gain so the sudden capital loss and the plunge below $32 came as a surprise.
The continuation of the downtrend has also been unpleasant for investors who bought into GE's bulwark reputation.
From a charting perspective, there are three issues. The first is locating historical support areas that may slow the fall. The second is the strength of the current trend. The third is the end of the current trend and the potential for a trend reversal.
Historical support is difficult when we discuss GE. This is partly because the stock spent so many years resting on its laurels in an extended trading band. It is also partly because GE has gone through so many stock splits that it becomes difficult to establish valid historical support levels.
And the market agrees with this thinking.
The minor pause around $26, followed by a minor rebound was not a test and retest of support. This was ill-informed bargain hunting rather than a genuine support rebound.
The same appeared again around $14. This was a triumph of hope over reality. There was no historical support at this level and no evidence of a genuine change in trend. The weakness of support in this area is confirmed by the way the market reversed and promptly fell below $14.
The second issue is the strength of the trend. The direction of the trend is clear. We could turn to a host of other oversold technical indicators but they simply tell us what we already know. GE is in a downtrend.
We use the Guppy Multiple Moving Averages (GMMA) display to understand the strength of the trend. The long-term GMMA is well separated showing that investors remain consistent, vigorous and committed sellers. Traders are of the same opinion. The separation in the short-term GMMA remains consistent. When the rally develops there is very little compression in the short-term group, and no evidence of compression in the long-term group.
This is a downtrend that is well established and which shows no evidence of slowing its momentum. The bear is on a full roll.
One hopes that there's safety barrier – preferably above $1.
This is the third issue and it relates to the end of the trend. There no chart pattern or an indicator which gives a reliable method of setting downside targets. We have to search a long way back into history to find a period of lazy consolidation that has the potential to act as a support area. This period develops in the early 1990’s and has an extended consolidation band running between $4 and $6.
From a charting perspective, this is the only feature on the historical chart which suggests any substantial consolidation support. And here is the bad news.
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In a bull market, a trend retracement uses the upper edge of a consolidation area as a rebound point. In a bear market, the rebound develops from the lower edge of the consolidation band. Traders should watch for a rebound to develop between $4 and $6.
The key feature for a trend reversal is not just the development of a rally. When the rally develops we also need to see a compression and uptrend in the short-term GMMA. Additionally we look for compression to develop in the long-term GMMA. Until these features develop it’s a fast ride to $6 and a great way to trade short but not the type of electrifying experience investors are hoping for.
If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. We welcome all questions, comments and requests.
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