logo

The last time GE did this, it plummeted 20% in little over a week

VIDEO4:0004:00
The last time GE did this, it plummeted 20% in little over a week

General Electric stock surged as much as 14% after the company beat on earnings and boosted its free-cash-flow guidance.

However, Wednesday's gains may have set it up for a troubling parallel. Its relative strength index, a momentum measure, has peaked at above 70, indicating overbought conditions. The last time it was this overbought — in February — it tumbled nearly 20% in just over a week.

Mark Newton of Newton Advisors said GE could be in for some more losses, but he likes the stock for the long haul.

"GE does look to me to be in a longer-term bottoming process. Back in 2016, the stock was at $30, and went promptly to $6 last year. It gradually has made some progress, went up above $10, has really been sideways for the majority of this year since February. I do view that the stock is longer-term attractive at these levels, [but] I do think it's going to take time," Newton said Wednesday on CNBC's "Trading Nation."

"We seem to be breaking out above at least a minor trend line since last May. That is encouraging," said Newton. "Bottom line is that it really needs to make a little bit more progress getting up above the highs we saw earlier this spring — $10.79 would allow it for a much larger move up into the mid-teens."

It briefly touched $10.79 in July and has not closed above $11 in a year. It was at $10 in Thursday's premarket, down 1% from Wednesday's closing price.

"For now I think it's a good risk-reward only because it's likely done going down, you know, so the near term is probably still good to own that stock and it trends sideways if not higher," said Newton.

Industrials in general look like a potential buy, according to Chad Morganlander, portfolio manager at Washington Crossing Advisors.

"We have 2x exposure to industrials. … We think that the valuations are really cheap. And that's even with a base case of continued global deceleration with global growth of roughly about 2 to 2.5% for 2020," Morganlander said during the same segment.

However, it's not a blanket buy across the sector. He advises picking and choosing the industrials stocks to own, based on a few criteria.

"We do caution investors that if you're buying industrials going into the later stages of an economic cycle like we are, you want to be in industrials that don't have a lot of leverage on their balance sheet, that are consistently growing, consistently profitable and are well diversified," said Morganlander. "Look also for industrials that have a rising dividends thematic with consistent well-diversified product lines as well as customer base."

The XLI industrial ETF yields 2%, slightly higher than the S&P 500. Some of its components carry a far higher dividend — for example, 3M yields 3.4%, UPS 3.3% and Caterpillar 2.9%.

Disclaimer