General Electric (GE) shares gapped lower at the open on Friday, following a mixed earnings report. Third-quarter profits beat analyst expectations but a downgrade in expectations for annual revenue and profit sent shares lower at the market open.
Shares traded at $28.44 at the open and had reached a low of $28.33 prior to turning higher. The recovery from lows erased a bulk of the day’s decline as a result of the gap lower while a further recovery on Monday served to erase the entire decline.
Monday’s recovery was short-lived, following the gap close, share prices corrected lower. A boost is seen today with a 4-hour candle on track to erase declines from Tuesday.
An Elliott Wave count tracking the decline from the July 20 peak indicates that the correction lower has completed and the shares are turning higher in the broader uptrend that has been seen over the past seven years.
The decline completed as a double correction, essentially two back to back zig zags. With momentum in the move higher further confirming that shares are pushing higher in a bullish corrective sequence.
On a weekly chart, GE has held a rising channel that connects December 28 highs with July 11 highs for the upper line, with the lower line is drawn from February 8 lows. On an intra-week basis, shares have dropped below the rising channel, but on a weekly basis, the lower channel line has held prices higher.
The trade setup calls for an entry via a bid stop order. The buy order from a higher price will both confirm a bullish wave structure and add to the conviction that the rising channel will hold prices higher.
There is also a declining channel that connects September 29 highs with Monday’s highs. The bid-stop order will ensure the declining channel has been breached to the upside, providing confirmation of the change in trend.
The June 27 spike low of $29.17 has provided resistance on several occasion over the past week. The level remains the first notable resistance point, and the bid stop order has been placed above it.
Friday’s lows are seen as an invalidation point in terms of the Elliott Wave count, thus the stop loss is set below it.
A strong level of resistance is seen at $31.44. The level reflects 2015 end of year highs and served as resistance on several bullish attempts in September. Although the Elliott Wave count suggests that shares are turning higher within the broader uptrend, the level is used as a take profit target with the view that a sharper pullback can be seen from the level.
Risk to Reward: 1:2.5
Time Frame: 2-3 Weeks
DISCLAIMER: The author currently holds long positions in the above-mentioned company.