General Electric was once a company that seemed to have its hand in nearly every industry. So what made this huge conglomerate a target for swing trading? And more importantly, why didn't the GE stock trade last?
Swing Trading Example: GE Stock
GE stock is no longer the maker of everything from lighting to locomotives and media to machines. The former staple of the Dow Jones Industrial Average is looking at a more focused concentration. It has shed divisions as it streamlined, separating GE stock into health care, energy and aerospace company stocks.
Investors seem to be on board. GE stock rose nearly 80% at its peak this year (1) which started with a spinoff of GE Healthcare Technologies.
As the market waned in the summer months, GE stock also found itself in a basing structure. But it was a rather tame 9% giveback as it formed a flat base. Along the way, it had multiple touches of the 50-day moving average line that found support (2).
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We took the latest bounce from the 50-day line as an opportunity to add GE Stock to SwingTrader (3). At the time, we still had a market rally intact from the Aug. 29 follow-through day, but it was already downgraded to "under pressure." As IBD often warns, not every follow-through day works.
Exiting Quickly When Things Don't Work
After our entry, GE stock started moving in the right direction but had trouble with its closes. The next three days saw closes in the lower half of the trading range for the day.
It started with a 2.3% jump (4) that finished with a gain of just 0.7%. Then a 1.2% drop put us right back at our entry (5). Finally, a gain of 3.2% was nearly halved to a 1.8% gain (6). Fortunately, on this last day we locked in some profit. As usual we took a third of the position off when we had a 2.5% gain from our entry (6).
How was the market during this time? The Nasdaq composite and S&P 500 both fell back below their 50-day moving average lines. It was no time to be a hero.
The troubles mounted the next week. A big warning came on Sept. 20 when GE stock had a wide spread between its high and low on an outside day that closed near its lows (7). The day engulfed the prior two days trading action but couldn't close strong. This was also a day when the market outlook was downgraded to market in correction.
The end result was a lower tolerance for bad behavior. We already had low exposure at just over 20% and we cut it further the next day. That started with GE stock as it exited early in the session after puncturing its 50-day line (8).
We ended the trade slightly positive. That was only possible with the combination of locking in some profits early and cutting quickly when GE stock fell below our entry.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
