Follow Up on GE

A few days ago I wrote a post about a classic bottoming pattern displayed by GE. Now that trading for the week has ended, I want to quickly revisit GE. The chart shows price action for Thursday and Friday (click to enlarge):

Notice that GE outperformed the market on the two bad days that ended the week. Its relative strength (below chart) turned up signifying this fact. Also, while GE is still oversold, it is less oversold than it was on Wednesday. Finally, look at the price bars (I omitted volume to unclutter the chart). There are higher lows, which is good, but we have yet to exceed Wednesday's high.

The fact that GE's price withstood a big down day on Thursday is something to pay attention to. Keep checking to see how this plays out.

I will finish this post with a look at GE from a weekly perspective. How does this week's price action show up? The weekly chart is given below (click to enlarge).

Note that the price bar for this week has a large lower tail, indicating that the potential bottoming we observed with the daily charts is beginning to show up on the weekly level. Weekly volume also shows a surge, consistent with the daily result from Wednesday. Also, the RSI indicates that GE is the most oversold it has been since December (the period of this chart).

As a rule, you should always look at daily and weekly charts before deciding whether to purchase or sell stocks. Daily charts contain a lot of "noise," based on day-to-day fluctuations that might not reflect the overall trend. Weekly charts smooth the daily fluctuations out.

So, the weekly chart has not yet given a buy signal. We require confirmation of the pattern with price next week going above last week's high. How likely is this? I recommend checking the upcoming economic data for next week to see if any potential "land mines" exist. Then, follow the daily and weekly price data in that context.

Spotting a Bottom

While many things happened today, most notably this was an up day (yes those actually occur from time to time), I thought I would write a post showing a classic bottoming pattern in technical analysis. This can be seen by referring to GE (General Electric), which has been totally beaten up over the past year, mainly because it has a large financial segment. The chart below shows daily action for GE (click to enlarge):
First, let's forget about support. There is enough information to overlook that at present. Note that the chart shows GE to be VERY oversold at present. Now, focus on today's bar. It illustrates something that often occurs at bottoms: there is a large and significant lower tail (below the closing value). Even though today's close was lower than the open, the bears, who at one point were able to get price much lower than the closing price, were largely rebuffed by the bulls who were able to reverse much of the bears' negative momentum. In candlestick charting, today's bar is called a hammer, which "hammers a downtrend shut."

There is further reason to consider today's bar as significant: it occurred with extremely high volume. This is indicative of capitulation -- the "soft" money gives up and sells off, leaving only the "firmer hands" that will likely move price higher. This is an example of what I often refer to as "shaking the tree."

While today's action has all the makings of a short-term bottom for GE, there is no guarantee that it will actually be the bottom. Confirmation is required from tomorrow's price action: will tomorrow's trading move price above today's high? If so, there is reason to expect follow through. Of course, if more financial "shoes" drop, if tomorrow's initial claims data is a disaster, or if Friday's employment data are worse than the whisper number of around -850,000, all bets are off.

I suggest you follow GE for the next week or so and see how this plays out. To help you further, I have also added the chart for GE as most people look at it: closing prices only with no technical indicators. What would you conclude from this chart???