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Don't buy the bounce in GE stock, some market watchers warn

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GE's rebound could be a headfake, traders warn

GE kicks off a new week after some crazy moves.

The industrials stock plummeted on Thursday in its worst day in more than a decade after Harry Markopolos, the whistleblower behind the Bernie Madoff Ponzi scheme, warned of accounting fraud "bigger … than Enron." The stock then surged on Friday after CEO Larry Culp doubled his stake in the company, instilling confidence in investors shaken by the allegations. Markopolos conducted his review while working for a hedge fund that had shorted GE stock. 

Craig Johnson, chief market technician at Piper Jaffray, isn't buying the bounce.

"I like to often stand back and kind of employ the logic of 'where there's smoke, there tends to be fire'," Johnson said on CNBC's "Trading Nation" on Friday. "This is a stock that's been making a series of lower lows and lower highs since 2017."

While GE is higher for the year, it has endured a rough stretch that has included extensive restructuring efforts, a slashed dividend and a booting from the Dow Jones Industrial Average. It is down 85% from its 2000 peak.

"Until I see this stock trade above $9.50 or $10 and really reverse that downtrend and get back above the 200-day moving average, I'm going to stand back and just watch and see how this unfolds," said Johnson.

GE broke down below $9.50 per share last week. It has not traded above $10 since the beginning of the month. In Monday's premarket, it was trading at $8.72, up 0.8%.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, is also steering clear of GE.

"It's purely a punt play at this point. Nobody really knows the quality of their balance sheet, and while it may not be fraud, it could still be a very aggressive accounting and that alone could introduce enough doubt," Schlossberg said Friday.

That doubt could even begin to impact the company's operations, he added.

"Remember the Latin word for 'credit' is belief and once you introduce doubt into investors' minds … you're going to have essentially a penalty tax that they're going to have to raise when they try to raise debt, and that's going to make it more expensive. It's going to have a great impingement on their operations going forward," said Schlossberg.

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