Ask The Trader
Wednesday, February 28, 2001
Dissecting A Long Term Buy In GE
What is your opinion of GE for a long-term (4-6 year) hold and what are their different things to look at on a chart when focusing on the long-term?
General Electric (NYSE:GE) is a company with an amazing growth story. It is also a company that backs up the notion that outstanding shareholder returns can and do result from outstanding management.
Many investors have been concerned that with the upcoming retirement of Jack Welch, arguably one of the best managers corporate America has ever seen, GE will not be able to keep on its current growth track. But with the recent appointment of Jeffery Immelt to President and Chairman Elect, investors' fears have been allayed, as Immelt is known to be a proponent and supporter of "the GE way."
When looking to enter a long-term investment, it is important to first look at the long-term trend in a stock. We do this to make sure that the stock fits our risk parameters (is it volatile or a steady climber) and to make sure that the trend has indeed been to the upside. To get a grasp of the long- term trend we need to turn to the weekly and/or monthly charts.
As can be seen by the weekly chart, GE is currently at a low level as compared to its long-term trend line. This is ideally where you want to enter a long-term hold. The best time is of course right at the trend line, but in this case, GE has succumbed to market selling pressures and dipped lower.
The concept is to enter at a low point as compared to the mean of the existing long-term trend, to provide yourself with a low risk entry point and to get a few more percentage points on your returns, assuming the trend continues in your favor.
Once you have determined that the weekly chart has confirmed that the long-term trend is favorable and that the stock is currently trading near or below the trend line, you can turn to the daily chart to time your entry further.
As can be seen from the above charts, GE is an excellent long- term buy since its long term trend is favorable and it is close to issuing a short-term buy signal. In addition, it is a fundamentally sound company that has a proven track record.
Good Luck and Have a Profitable Trading Day
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