What's the Right Price to Buy a Battered GE?

 | Nov 20, 2017 | 2:00 PM EST
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When a stock like General Electric (GE) has been in a free fall and I'm asked where a good place for a buy entry might be, I look at Fibonacci time and price parameters to help me identify where this might be. I also look at a weekly chart to see if the bigger picture will provide some information not found on the daily chart. And, of course, I examine the daily chart and apply my Fibonacci time/price tools. So, as you can see, I actually have more than one way to define when and where an entry might be a good bet.

Let's start with GE's weekly chart for any kind of clues.

On the weekly chart below, I have found a standout support decision where I can define my risk on the buy side. The zone comes in at the $15.66-$16.41 area. This Fibonacci cluster comes from the coincidence of a 0.618 retracement of a major low to high swing along with a 1.272 extension of a prior major swing (remember that many moves tend to terminate around extensions of prior swings).

On the daily chart of GE, below, you can see where the stock started to lose value after price fell below the 200-simple moving average (pink dotted line on the chart). The stock is still clearly below this average and it will take quite some time to get back above this area and we certainly don't want to wait for that as a signal for entry.

What I see on the daily chart is that since the huge decline started from the December 2016 high, the prior corrective rally swings have been between $1.01 and $2.37. The most recent bounce in GE is about a buck. This is just similar to some of the prior rally swings so far. I really can't get too excited about thinking a low might be in place in GE until it can rally for more than these prior swings between $1.01 and $2.37. I actually would want to see a rally of more than $2.37 and a pattern shift where GE takes out a prior swing high. Right now the prior swing high is at $20.75.

With all that being said, when should we buy GE? Personally, I like to see my key support zones tested and then to see this followed with a buy trigger. This may not happen in this case, but what you can do is be a buyer at current levels if you are willing to define your risk below the $15.66-$16.41 price cluster zone.

Another entry idea/signal that I would consider worthwhile, as long as this same key support holds up, would be the 5 exponential moving average (EMA) crossing above the 13 EMA on the daily chart. Again, the maximum risk should be defined below the major cluster.

I do have one more suggestion and this would tend to be the least risky of all. You can wait for GE to rally for more than $2.37 and clear this by a decent margin. After this occurs, you buy the next pullback after this break of the symmetry (pullback should be between 50% - 0.786% of the prior swing) and then you can define your risk below the low made prior to the breakout above the symmetrical projections.

Let's face it, GE doesn't look awesome on a technical basis just yet, but as long as you can define risk and have a reason to consider an entry, it's definitely worth looking at, while at these bargain basement prices.

Before I go, let's revisit an example of a counter-trend setup I shared with you a while back for Michael Kors (KORS) . When retail looked pitiful, we had reason to look at the buy side in KORS as it coordinated with my Fibonacci support very well. KORS then showed a double bottom and also eventually saw the 5 EMA cross back above the 13 EMA, indicating it might be worth a buy. Below, you can see the results of that setup.

Michael Kors Chart
General Electric is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells GE? Learn more now.
This commentary originally appeared on Real Money Pro . Click here  to learn about this dynamic market information service for active traders and to receive more columns like this from Carolyn Boroden, Doug Kass and others.

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