General Electric Stock Sinks on Fraud Accusations

GE stock is eyeing its lowest close since late January

Aug 15, 2019 at 9:55 AM
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It's been a busy stretch for General Electric Company (NYSE:GE) news, with the shares dropping on Monday following comments from one noted GE bear. Today, the stock is down 5.6% to trade at $8.52, on reports Nelson Peltz's Trian Fund Management cut its stake in GE. Plus, a new report from Madoff whistleblower Harry Markopolos has traders questioning the extent of General Electric's financial troubles.

More specifically, the Wall Street Journal reported on an investigation into GE by Markopolos, who initially tipped federal regulators off to Bernie Madoff's Ponzi scheme. In a report titled "General Electric, A Bigger Fraud Than Enron," the investigators said fraudulent accounting has "left GE on the verge of insolvency," and suggested the company's insurance arm needs to increase cash reserves by $18.5 billion. In a statement, General Electric said it "stands behind its financials."

GE's recent technical troubles have sparked accelerated bearish options trading. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 0.70 ranks in the 70th annual percentile, meaning puts have been bought to open relative to calls at a quicker-than-usual clip.

The October 8 put saw the biggest increase in open interest over this two-week time frame, with more than 75,000 new positions added. Data from the major options exchanges confirms buy-to-open activity here, meaning traders are targeting a move below $8 over the next two months. Meanwhile, shorter-term speculators purchased new positions at the August 9 put, which expires at the close tomorrow, Aug. 16.

GE stock is now headed toward its lowest close since late January, and has shed 17.5% since a late-July rejection at its 320-day moving average. The shares are pacing toward their third straight weekly loss, and are down 19.5% so far this month.

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