How Much Damage Did Tusa's Downgrade Do To GE's Technical Picture?

General Electric Company GE tumbled more than 7 percent Monday after JPMorgan analyst Stephen Tusa downgraded the stock from Neutral to Underperform and lowered their price target to just $5. GE’s share price was off to a hot start to 2019 prior to the downgrade, but a look at the stock’s chart suggests Monday’s move may have done some significant technical damage.

After a brutal October and November of 2018, GE shares finally seemed to hit bottom when the stock bounced off of the $6.50 level twice in December. Since that time, the stock rallied as high as $11.20 in late February before settling last week at around the $10 level. Up until Monday, GE shares traded in an increasingly narrow pennant formation for roughly two months, trapped between the stock’s 50-day and 200-day simple moving averages.

Related Link: JPMorgan Downgrades GE, Says Wall Street 'Significantly Over Projecting' Cash Flow

Levels To Watch

Unfortunately, GE’s share price broke down Monday, falling below its 50-day SMA support line and out of the pennant formation. The good news for GE bulls is that the $9 support level that held in both February and March has so far held up on Monday as well. If the stock closes above $9, the technical damage may be contained. If it doesn’t, GE may not find support until the $8.50 level where it consolidated throughout most of January. Below $8.50, the next potential near-term support level is way down at the December lows around $6.50.

If $9 holds throughout the rest of the week, GE traders will shift their attention to a potential bounce. The first resistance level will likely be the 50-day SMA at around $9.86. Above that, the 200-day SMA at $10.32 will be the next potential resistance.

Long-Term Outlook

Despite big early 2019 gains off of December lows, there’s still not much to like about the stock’s longer-term technical picture. February highs of $11.28 were still well short of October highs of $13.21. GE shares consistently made lower peaks throughout 2018, a hallmark trait of a bearish trend.

For GE to make it to JPMorgan’s new $5 price target, it will have to take out that December $6.50 support at some point. If it does, traders can expect significant volume and a potential volatile near-term move to the downside.

GE's stock traded around $9.31 per share at time of publication.

Photo credit: Empoor, Wikimedia Commons