Betting on a Lasting Breakout for GE Stock

We recommended GE call options to our Weekend Player subscribers this weekend

Apr 30, 2018 at 2:07 PM
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Notorious Dow underdog General Electric (NYSE:GE) shocked Wall Street with a profit beat last Friday, alongside a 2018 forecast that assuaged some of the worst-case concerns harbored by investors and analysts alike. Friday's big bull gap included, GE closed last week up 7.8%, while the broader Dow Jones Industrial Average (DJI) was just barely positive for the five-day period.

Following a 52-week stretch wherein GE stock lost more than half its value -- a lengthy and unrelenting decline that had some market-watchers all but writing the conglomerate's obituary -- the stage appears set for the equity to embark on a burst higher that could be equally relentless.

Per the chart below, GE's breakout performance last week carried the shares above a notable cluster of resistance levels around $14 (marked as "A"), including the area corresponding with a 20% year-to-date loss, as well as its 50-day moving average. The next "resistance cluster" we're looking for GE to power through lies around $15 ("B" on the accompanying chart), which would involve a close above its 80-day moving average (a trendline last surmounted in April 2017).

As the shares rally hard off multi-year lows, we could see a wave of bullish analyst notes fuel the fire. GE currently has only five "buy" or better ratings from analysts, compared to eight "holds" and three "sell" or worse recommendations. Plus, the stock's average 12-month price target has been slashed by more than 14% since mid-January. The company's well-received quarterly results and full-year forecast, coupled with the stock's strong reaction, could prompt some upgrades and price-target hikes in the weeks and months ahead.

Finally, July-dated GE options are among some of the most attractively priced on the stock's term structure, from a volatility perspective, with at-the-money implied volatility of 29.2% (per Trade-Alert) checking in 6.5 percentage points lower than that of the post-earnings weekly 4/27 options series. Our recommended call was offered at $1.17 at Friday's close, and will triple on a move by GE to $17.51, compared to the 2017 closing price of $17.45.

ge daily sm 0422

Subscribers to Schaeffer's Weekend Player options recommendation service received this GE commentary on Sunday, April 22, along with a detailed options trade recommendation -- including complete entry and exit parameters -- straight from Bernie's trading desk. Learn more about why Weekend Player is one of our most popular options trading services.

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