Shares of General Electric are approaching a key level that has historically sparked big reversals in the stock.
GE’s stock rallied as much as 13 percent on Monday after the embattled company said it will sell its life sciences business to Danaher, GE CEO Larry Culp’s former employer. They were up 3 percent in Tuesday’s premarket.
The rally comes as the company has soared more than 60 percent off its now infamous $6.66 bottom in December, and follows a multiyear downtrend fueled by a combination of high restructuring costs, weak performance in key lines of business, crippling one-time charges and top-level executive changes.
But there’s one under-the-radar indicator that could point to trouble ahead: the average analyst price target.
On at least two occasions, including in July 2016, GE’s stock crossed over its average analyst price target only to reverse course and collapse in the following weeks. In October, GE shares briefly rose above Wall Street’s average price target of $11.52 before spiraling 45 percent to its mid-December lows.
Now that GE’s stock has climbed above $11 a share for the first time since October, there’s a risk it could reverse if it breaches its $11.62 average price target, Newton Advisors’ Mark Newton said Monday on CNBC’s “Trading Nation.” The stock closed less than a dollar away from that level on Monday, at $10.82 a share.
“I do think it’s had a decent run, and there are some technical reasons to suggest it likely stalls here and pulls back,” Newton said.
But that doesn’t mean all is lost for GE’s long-term investors, Newton said. While he did see “pretty serious overhead resistance” in the $11.50 to $12 range, he said the stock seems to be building in a bottom here that could create a buying opportunity in the coming weeks.
“For a long-term investor, I do think it’s in a bottoming process,” he said. “It should be held, particularly for those that have bought up near $33 a couple of years ago.”
The technician added that a near-term pullback will likely give “longer-term investors maybe a better-suited area to buy in the weeks ahead.”
Chantico Global CEO Gina Sanchez also sees a good deal of upside, telling CNBC that most of Wall Street was in favor of the company’s move to sell off its biopharmaceutical business.
“Biopharma was a great unit, but it didn’t necessarily fit in the rest of GE Healthcare, so it was a perfect unit to sell in order to generate money … and reduce their debt, and that is really a critical key for them right now,” she said on “Trading Nation.” “There are very few people who are going to look at this and say, ‘That’s a bad move.'”
Now, the question is whether the company can execute on reducing its debt load, and for Sanchez, much of that still remains to be seen.
“Deleveraging is one thing; getting the business back in order is a whole different story. For a long time, [GE shares] were really trading at option value, and so I think still a lot remains to be seen in terms of the execution.”
GE shares are up 42.61 percent this year.