DailyPlay – Opening Trade (GE) – February 21, 2024

GE Bearish Opening Trade Signal

Investment Rationale

As equity markets recently printed all-time highs, stocks that have been bid up beyond their historical valuations are at risk of a pullback. One stock that fits this criteria is GE. It’s reached prices we haven’t seen since 2017 and currently trades at the highest end of its historical valuation. In my opinion, this rally is overdone and an opportunity to fade this strength.

Technical Analysis

If we look at the 20-Year Chart of GE, it rallied nearly 200% over the past 18 months and reached a major bearish trendline that started in 2007-2008. We’re just trading up against this trendline and at a potential stopping point for this rally. Additionally, all momentum indicators have reached severely overbought conditions that statistically point to a potential pullback in the short run.

GE – Daily

Fundamental Analysis

The most glaring issue is the fundamentals. GE now trades at 32x forward earnings, which is the highest it’s ever traded for over the past 10 years by nearly 20%. GE is trading at the same price as in 2017 when it was earning nearly three times in profits. Analysts are forecasting GE is expected to return its 2017 EPS sometime in 2026-2027. I feel that investors are being overly optimistic about its prospects. 

Trade Details

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish Credit Spread

Details: Buy to Open 4 Contracts April 19th $52.50 Calls @ $4.35 Debit per contract.

Total Risk: This trade has a max risk of $2,104 (4 Contracts x $526) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $526 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bearish trade on a stock that is overbought and likely to pull back to lower levels. 

1M/6M Trends: Bullish/Bullish

Relative Strength: 10/10

OptionsPlay Score: 100

Stop Loss: @ $6.48 Debit. (100% loss to the value of premium received)

View GE Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Thursday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View GE Trade