General Electric Has Righted Its Ship

General Electric (NYSE:GE) stock is down on its luck this summer, but it’s far from suffering. Year-to-date it’s up 16% and up 75% in a year. That’s 40% more than Apple (NASDAQ:AAPL), to mention one leader.

Management, therefore, deserves a lot of credit. This comes after tremendous criticism going into 2019. GE stock hit rock bottom in 2018 then retested it during the pandemic. This is a floor the bulls can count on should the you-know-what hits the fan. We are still from bulletproof support here, so I would be cautious this week. If markets continue to struggle, GE stock will too. Overall it will follow the indices price action.

The company seemed in shambles and falling into disaster. But then they finally righted the ship. Now they have focus and its future is more secure.

Owning GE stock for the long term makes sense. Trading around the shorter-term action also works. It is a matter of preference and neither are wrong.

My strategy is simple, I get long the stock on big dips and fade it into resistance. We have seen sellers place a top near $14.50 since last February. Most recently it failed there in March and June. Taking that out would be the place where the bulls can chase it up. That would be a “trade” that can turn into an “investment” for the long term.

This week will be important because the whole market has a point to prove. The indices closed on a weak note and the bulls need to buy-the-dip. Meanwhile, GE buyers need to also avoid losing support. Catching the falling knife is risky if the indices are having a tizzy.

GE Stock Risk Is Mostly External

The stock markets are in a unique situation. We have never had this set of circumstances before. We need to forget about most of the rules and go with the flow. Investors must become temporary traders because we really don’t know what’s around the corner. Moderation is key, so taking full size positions is wrong.

The GE financial metrics look reasonable now but there isn’t much to gauge. They are still healing from prior mistakes. The important bit is that General Electric is leaner and meaner and ready to shine. You won’t find incredible growth metrics yet and that’s OK for now. The goal is to build a slow and steady base. Then they can sustain a growth path for the future.

The buy-the-dip has meme has worked since December 2018. The Federal Reserve has had our backs since then as they cast wide net. This emboldened investors to eagerly catch falling knives. At some point this won’t be the case any more, and that’s when late bulls fall victims to the trap.

We get too comfortable repeating behaviors not noticing subtle changes. GE stock chart is not yet showing warning signs. However, it is showing a battle for control in the current price action.

Long term it is a viable long. Short term it will need the help of the indices. Technically, it rallied 35% out of January. As of Friday it had given back 50%. This is normal so the bulls can rebuild the base for another stint higher. The shakeout rotates ownership from weak hands to stronger ones. This is a process that would allow GE stock to continue its weekly ascending bullish pattern. Having short-term dips is part of normal sustainable rallies.

Suppress Conviction Levels on Purpose

When and how we get long a stock varies. There isn’t one answer for all investors, because we have different timelines and goals.

Regardless of methods, we should be humble with our conviction. We don’t know what we don’t know, therefore we need to bend a little. Conviction needs to be slightly lower than normal by design for every trade.

In addition, earnings are coming soon and those events are always a toss up. Short term, we don’t know how investors are going to react to the scorecards. Most likely GE stock will trade on expectations more than fundamentals. Management will likely deliver a strong report, but that won’t matter much at the next open.

If the results are good and the stock tanks that would make for a good buying opportunity for investors.

The Risk and Opportunity for GE Stock

When we have this much uncertainty it might be interesting for investors to learn new tricks. The options markets allow for dozens of alternative strategies that mitigate risk. I mention this because there is technical risk all the way to single digits. This stems from the huge rally last November and the $12 ledge. This leaves me worried about a harsh correction.

I don’t anticipate this happening without a market-wide correction. Nevertheless, the risk is there and it’s real. Should the doom scenario unfold, I would take advantage of it. This is a great American company that has restored its name.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Nicolas Chahine is the managing director of SellSpreads.com.