GE and Crude Oil

GE 2020Crude Oil 2020

EW is all about pattern recognition which is more or less the same as finding a correlation between two entities or between two different time periods. Sometimes finding some sort of correlation is easier than counting little waves. It is also easier to verify the correctness of the analysis as all you really need to have is an outcome that is pleasing to the eye!

Once upon a time these serious German analysts discovered that there was a near perfect correlation between the number of storks flying over Stuttgart and the number of Mercedes-Benzes sold a month later. We know, of course, that there is no causal relationship between the two but that points to the heart of the matter, which is that you do not need to know or understand the cause, all you need is to observe.

The charts above are not perfectly aligned in time simple because I don’t know how to manipulate the values on the x and y axis. Nevertheless there is a clear resemblance between the two. Moreover I have been consistently bearish on oil expecting it to drop to about $10/b., see for instance my take on Suncor, SU and many others. GE was a little different, as it looked to me as if the entire correction was over  at the 2009 low of, I believe, $5 (not shown in this chart!). But then I changed the outlook and started looking for another low, but still used the wrong count maybe.(see this blog).

Anyway if oil does go to $10/b, it already dropped just under $18/b despite Trump’s nth attempt at “the art of the deal”, then GE could easily drop proportionately by, say, 3 or more dollars. Ergo I think GE at $4 is a screaming buy! Apart from this “analysis” I also believe that GE cannot go bankrupt as a practical matter as it is an integral part of the US military industrial complex.  Together with Pratt and Whitney and Rolls Royce, GE is one of just three companies in the Western World capable of making these large turbines. With America First policies it is unimaginable that they would allow it to fail.

Despite all of the above it still remains possible that the original count, that of a large A-B-C correction from $55 to $5 was correct and was then followed by a wave 1 up of a new bull trend. The drop from $32 to the recent low of $6+ would then be a wave 2. Next would be wave 3 up.

By the way, you cannot make one of these in your proverbial garage by tinkering with old lawnmower parts and oil at $10/b will shut down oil production by 85% simple because it becomes uneconomical. The link between this engine and oil is that this thing burns 4kg/sec of jetfuel, about 240 liters per minute. You can easily drive your car for more than a month on that.

ge turbofan

GE new take

ge april 21 2018

We thought GE might have hit bottom a little while ago. That might have been incorrect but it does not matter as you could get out of the trade breaking even, which I would not recommend under $16 to $19 or so.

There is something wrong with the count last time but I may be over-thinking this. There are a number of reasons why this may not be the bottom. The low back in 2009 was around $5 so this stock has risen $31-5=$26. It is “normal” for second wave corrections to retrace as much as 78% or even more of wave 1. In this case that would suggest a low of around $11. Next the count does not add up. My educated guess here is that we just completed waves 1,2 and 3 and therefore need to add a 4 and 5 before hitting bottom. Alternation here would favour a flat or triangle, which is an elongated flat, as shown. The third argument is the gap in the middle theory. There is no gap in this chart but the “thinnest” point is at about the $21 mark, or $10 from the top. A similar distance down again would bring us to $11 as well. Then wave 3 up can start.

Fundamentally GE cannot go bankrupt. It is at least as important as GM which did go bankrupt but was bailed out. It is too important militarily and it just will not happen. Which does not mean that you cannot lose a lot of money but it does mean that things are ok at the other side of the valley. Good luck.

GE update, fooled again.

ge feb 13 2013

See previous blog. This was not supposed to happen according to the experts, but here we are with a new high of $23.44, well above the previous one of $22.970. So what went wrong? Perhaps the 5 wave down sequence was preceded by a small a and irregular b making the 5 waves the c. Perhaps the present climb will prove to be an irregular b-wave. It is all splitting hairs and simple put EW does not work always. Particularly not in real time.

GE, General Electric

All the big stocks like Walmart, Exxon, IBM etc. have outperformed the index this year, GE included. Earlier (see blogs) we advanced the notion that GE might actually be so much out of phase with the market overall that it is, perhaps, in a new bull market. After all $5 or so seems low enough. Here is the chart again;

ge sept 2012

At $23 GE will have retraced 1/2 of the recent drop from $42 (it was once at $60!). The problem with the bull case is that there is no impulse wave up at all, although, I guess, you could stretch things a little and argue that we are presently in a wave 3 or even 5 of a first impulse wave. Not very convincing. A much better interpretation by far would be that the entire move from the low is actually “corrective”, that is counter-trend. The pattern would be an A-B-C with the B as an expanding triangle, treading water for 2 whole years. If the C is to be vector equal with the A, a very common event, it should unfold in 5 waves and end on the circle where it is now. Some are inclined to call the moves from b on the jaws of death. As noted elsewhere this pattern does not exist in EW-land and it has a little too dramatic ring to it. Here at least, it may be conveying the right message.