Shares of General Electric have had a good run in recent months, tracking the overall uptrend on Wall Street. The stock was up 19.6% in the first quarter, with much of the increase coming in the last month, when the stock surged from $15.90 to $18.20, a possible signal of confidence by investors.
A check of its weekly stock chart suggest the company will continue to see gains going forward.
There are two important factors which suggest the earnings release will confirm the existing trend behavior in GE. The first is the pattern of price behavior and the second is the pattern of trend strength. (GE is the parent company of CNBC.)
Trend strength is shown with the relationship in the (GMMA) indicator. This has two groups of moving averages. The short term group in blue captures the behavior of traders. The long term group in red captures the behavior of investors. The relationship between the two groups shows increasing investor support for the uptrend. This support is confirmed when the long term group turns upwards, and as it begins to separate. The wider the separation, the stronger the buying support for the trend.
The GMMA relationships, discussed more fully in my book TREND TRADING, show a classic long term trend reversal. The test and retest by traders are clear confirmation of a major trend change. The earnings release, good, very good, or even slightly bad will not be enough to change the direction of this trend.
At a tactical level the is confirmation of this general trend bullishness. The up sloping triangle also provides a method for projecting the initial upside targets. The base of the triangle is measured. This value is then projected upwards from the upper edge of the triangle. This gives an upside target near $21.00. This is an initial upside target suitable for traders. Investors use these calculations as confirmation of the bullish pressure in the stock.
As the stock's uptrend is established, it's unlikely GE's earnings on Friday will change its direction. While worse than expected earnings may cause a blip in the uptrend, it will not be enough toe change the trend direction. An earnings boost, however, will carry the price towards the up sloping triangle target level.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –. He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.
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