Japanese Candlestick Trading Signals
An excellent technical analysis tool for trading stocks, options, futures, or Forex is the collection of Japanese Candlestick trading signals. Since the days of the Samurai, these signals have guided traders to reliable profits. Candlesticks are not only a reliable trading signal but also easy to read and use. There are a dozen major signals and many secondary signals that rice traders in Japan used centuries ago and these patterns work just as well today in the fast-moving stock market.
The Secret Code of Japanese Candlesticks
The fact is that Japanese Candlesticks are a mystery only to those who have not bothered to learn them. The way the system works is like this. A “candlestick” is a rectangle with lines extending from the top and/or from the bottom. These symbols represent the range of trading of a stock or other equity over a defined period such an hour, a day, a week, or a month. The candlestick is superimposed on a price chart to help interpretation of evolving price patterns. The candle represents the opening and closing prices for the equity. So, when these were close together, the candle is very short and when they were far apart, the candle is very long. The lines (like wicks of a candle and called shadows) represent the total range of trading. When the equity closes higher than its opening the candle is white and when it closes lower the candle is black.
How to Read Japanese Candlestick Charts
Once you know how to read a single candlestick, the next step to understanding Japanese Candlestick signals is to understand the implications of a single size and color of candlestick and what it means when two, three, or more are found in sequence. Experts at trading with candlesticks rely of clear signals and never “reach” to try to make a signal meet their expectations or wishes. When you trade this way, you will only make trades that have a high likelihood of success. A basic and extremely important signal is the Doji candlestick.
Doji Candlestick
When markets are undecided as to whether a trend is about to end and reverse, the opening and closing prices for a day will be very close together. This gives you a candlestick that looks like a burned out candle with very little height or even just a line. This may be accompanied by very long upper or lower shadows which indicates that the market tried to move up or down but came back to its beginning level at the end of the trading period. This signal, by itself, does not tell you where the market is going next. But it does tell you to expect a jump either up or down when the market makes up its mind.
Japanese Candlestick Reversal Patterns
What many traders find profitable are Japanese Candlestick reversal patterns. A good example is the bullish engulfing pattern which commonly occurs at the bottom of downward market trend. It signals that the bad news has been all squeezed out of the tube of toothpaste and the market is likely to start an upward rally. The signal includes three downward days, a day when an upward rally started and then fizzed out, and then a day that starts by gapping lower and then rallying to “engulf” the previous downward day.
Japanese Rice Traders Candlesticks
These signals worked for trading in the Japanese rice markets centuries ago and still work today. However, they are applicable to virtually any traded market. These are purely technical trading tools and do not rely on any fundamental analysis input to interpret them. However, most traders use candlesticks as part of their trading arsenal along with tools like the important moving averages. Even folks who are experts at candlestick trading will typically wait for a confirming day or two before jumping in completely on what may be an impressive bull market rally.
Trading Applications of Japanese Candlestick Charting
Candlesticks are technical analysis tools. They have been around for centuries and provide an accurate indication of market direction when there are clear signals. However, the majority of traders who use candlesticks do so because the signals are easy to read. They are used in conjunction with things like moving averages and a basic understanding of intrinsic stock value. Many times value investors will have their eye on a stock that has excellent long term potential but which has been somewhat unfairly driven down by a negative market. The use of Japanese Candlesticks is meant to signal when to pull the trigger at the most profitable time to start buying that equity.
History of Japanese Candlesticks
Back in the Samurai era in Japan there was a legendary rice trader, Munehisa Homma. He realized that emotions of other traders had a big effect on prices, often as much as the forces of supply and demand. He simply kept track of how certain price patterns were followed by predictable market movement. And, he used a simple design, which is the same rectangle and line configuration used today. His system came into general use and, when the Japanese stock market opened in the mid-1800s, it came into use there as well. It took more than a hundred years for the rest of the world to realize the value of this excellent trading tool and put it to use outside of Japan.
Japanese Candlestick Tutorial
You can learn this system on your own by reading and practicing or you can get help from an expert. The best Japanese Candlestick Tutorial material we have found comes from Stephen Bigalow at www.CandlestickForum.com. There are several membership options that allow you to take advantage of both Japanese Candlestick trading and Mr. Bigalow’s expertise. Mr. Bigalow published a book entitled Profitable Candlestick Trading which is an excellent base from which you can start your journey to profits with Candlestick signals. Check their store for more information.
Why Is the Stock Market Ignoring the Economy?
As noted in recent article in The Wall Street Journal, the stock market had its best two-week run since the 1930s while the economy is looking worse and worse. They say that the stock market is ignoring the economy. Why is the stock market ignoring the economy? Is it as the Journal suggests that investors are expecting a fast economic recovery or that they believe a miracle cure or vaccine will appear sooner than experts anticipate?
Why Is the Stock Market Ignoring the Economy?
First of all, the stock market always anticipates how it believes the economy and individual companies will be doing in the near and long-term future. Warren Buffett said that if you are not willing to own a stock for ten years you should not own it for a minute. This is the long term investing approach and it should be noted that the famed “Oracle of Omaha” has not spent any of his cash hoard so far during the market meltdown or partial recovery. Shorter term investors and traders are more focused on technical factors than fundamental analysis when investing in stocks.
The market appears to be going up because today’s investors are keying on what happened in the recovery from the 2007 to 2009 Financial Crisis instead of what happened in the Great Depression. While we have been thinking about the possibility of a ten year recession, many investors want to time the market and get it at what they believe was a short term bottom. But, there may be problems with this approach.
When Will the Profits Return?
Historically low interest rates and impressive profits, especially in the top tech stocks, are what drove the market higher and higher for a decade. We will certainly have low interest rates for a long time to come but, how soon will profits return and to what degree?
Investor’s Business Daily writes that the Coronavirus Recession May Ravage Corporate Earnings Longer than You Think.
The first earnings season of the coronavirus recession is coming up soon, and the estimates range from terrible to catastrophic. And the outlook for a recovery will depend more on infection curves and social-distancing policies than on traditional economic stimulus.
The signs point to an ugly earnings season. Since the beginning of March, more than 200 companies have withdrawn guidance, including Delta Air Lines (DAL), Twitter (TWTR), Hilton Holdings (HLT), General Motors (GM) and Target (TGT). Even Apple (AAPL) has warned it won’t hit targets.
This was written just a couple of weeks ago and is coming true as earnings reports both shock and dismay many investors. And projections range from bad to horrific.
Yardeni Research projects plunges of 23.4% in Q1, 51.6% in Q2, 28.8% in Q3 and 4.8% in Q4. For all of 2020, the firm expects S&P 500 earnings to decrease by 26.4%, before turning positive next year.
Investors, like Buffett, who have adopted a wait and see attitude risk losing out on some nice profits going forward but those who are ignoring the worst loss of jobs (and spending power) since the Great Depression are risking everything!
What Is the Meaning of Gap Analysis?
What is the meaning of gap analysis? Gap analysis can refer to the comparison of performance versus expectations in a business or in large jumps up or down in opening stock prices. Both are useful for investors.
What Is Gap Analysis in Finance?
When the management and board of directors of a company see a substantial gap between performance and expectations, changes need to be made in operations or in management. Competent gap analysis will commonly make clear which path to follow.
Value investors commonly look at intrinsic stock value. When there is a gap between company potential and current performance and when that difference is likely to be remedied with time, a value investor will buy with the expectation of long term profits.
Equity Gap Analysis
What is the meaning of gap analysis for you as a short term investor or trader? You will often seek to profit from daily jumps (up or down) in the price of a stock. A correct interpretation of just why a stock price jumped leads to profits while an incorrect interpretation can lead to dismal results.
Advantages of Gap Analysis
Gaps occur most often because of either technical factors or quick changes in fundamentals. To take advantage of gap analysis, you need to know your gaps.
Breakaway Gaps
These happen when a trend has run its course and the market will move in the opposite direction.
Exhaustion Gaps
This is what happens when a trend or price pattern has largely run its course and not everyone sees it. As such, there will be a last heroic shot at a market high or desperate drop to a low.
Continuation Gaps
These are also referred to as runaway gaps. They happen in an established trend and typically signal that more investors are getting bullish (or bearish).
Common Gaps
This is the catch-all term for when a gap occurs and the reason is not clear.
And, you need to learn how to predict whether a gap signals a movement onward or will “fill” or move back to the original point. We wrote recently about the Tesla short squeeze. This was an instance when the gap refilled as the effects of the short squeeze evaporated.
Gap Analysis Model
In order to deal effectively with gaps between performance and expectations, a company needs a process. Luckily, a gap analysis model does not need to be developed from scratch. Many are available as are experts in revitalizing businesses. Likewise, a trader or investor who wants to profit from gap analysis needs to follow a reliable model. These are also readily available. The key is to learn the model and how to use it!
Gap Analysis Methods
When investing in stocks, you can use both fundamental analysis and technical analysis methods in gap analysis. Although the eventual price of an equity is determined by fundamentals, the daily variations, including gaps, are caused by market sentiment which is amenable to analysis with technical tools.
Gap Analysis Chart Templates
The best way to learn and apply gap analysis is to use templates which demonstrate the various types of gaps and how the market will act after the gap happens. This example demonstrates a runaway gap.
Gap Analysis Protocol
Successful traders and investors pick and choose the equities and market sectors in which they trade or invest. The same will apply to gap analysis. Many times a value investor will be watching a stock in hopes of buying at an attractive price. He or she may even be able to predict when a gap will occur. The most successful already have a gap analysis protocol in place that allows them to carry out fast and effective analysis that results in profits.
Will There Be a Post-coronavirus Stock Market Rally?
Recessions are eventually followed by economic recoveries and stock market crashes are usually followed by rallies. The usual questions for the market are how soon, to what degree, and which stocks will lead the way. The coronavirus pandemic and the need for worldwide social distancing measures have driven the world into a recession that some fear will last ten years or more. The Dow Jones Industrial Average has lost all of the gains of the Trump era and US employment has lost all of the gains since the Financial Crisis. If you are investing in stocks during this moment of crisis, when should you buy stocks again? Depending on which stocks you buy and when, will the coming rally be a profitable monster or a sad fizzle?
Will There Be a Post-coronavirus Stock Market Rally?
Market Watch is in the camp that expects the biggest rally ever as the coronavirus subsides. Their arguments are generally persuasive, but investors always need to do their own analysis when investing in stocks. Here are their arguments.
- Interest rates will be low for years to come which will make stocks more attractive than bonds, CDs, or other interest rate-dependent investments.
- The Fed will increase its balance sheet up to the $6 to $8 Trillion dollar range and history tells us that much of this money ends up in the stock market which will fuel a huge rally.
- Consumer demand is getting bottled up because of social distancing and when things get better people will be eating out, traveling, and hitting the mall in huge numbers.
- The will be a huge short squeeze as traders betting against a recovery get burned. Like with the Tesla short squeeze that we wrote about recently, this will drive the market up.
- Globalization is going to take a big hit, especially with the “anywhere but China” movement. As supply chains get shifted there will be a huge amount of investment which will spur the economy and the market.
- The unprecedented amounts of stimulus monies being thrown at the coronavirus crisis will at least partly find their way into the stock market and drive up prices.
- Low interest rates will drive retirees away from bonds and into stocks to retain their earnings in later years.
Is This Good Investing Advice?
If you buy their arguments, you will want to invest in an index fund that tracks the S&P 500 because they do not have any advice about which investments will do the best during a comeback rally.
We are not convinced that so much money will make it into the stock market because much of the stimulus money is going to buy groceries, pay rent, and keep workers on payrolls.
If there is a short squeeze, it will be temporary. In fact, the Tesla short squeeze we wrote about was immediately followed by a sharp fall bringing the stock back to about where it was before the squeeze.
What Kind of World Will It Be Post-coronavirus?
One of my children recently mentioned how many of her friends were “starting to sound like Grandma” who lived through the Great Depression. (saving every penny and never leaving a room without turning off the lights). Our belief is that this experience, which is not anywhere near over, will shape beliefs and habits for a lifetime. People are more likely to put money in the bank or secure dividend stocks than take long vacations for some time to come. Any rally will be based on people putting their financial lives back together.
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Will There Be a Post-coronavirus Stock Market Rally? – DOC
Quality Trend Analysis
Trend analysis is an effective way to predict equity price movements. But, it requires a good understanding of the market and its movements. And, for this tool to result in profits, it needs to be applied to quality investments trading on major exchanges and not cheap penny stocks that are prone to the “pump and dump” type of hype. We refer to this as quality trend analysis. Here is a snapshot of the various aspects of quality trend analysis that you can use for profitable investing and trading.
Purpose of Trend Analysis
The reason to use this approach in investment and trading is to predict future prices. The rationale is that by finding a beginning or continuing trend, an investor can buy and ride the trend to continuing profits. And, when the trend is about to reverse, this system helps one decide when to sell. The end game is always to gain profits and avoid losses, which is why quality trend analysis of strong companies that are actively traded in high volume is more reliable and profitable.
Objectives of Trend Analysis
When you use trend analysis your focus will be short term, medium term, or long term. Or it can focus on all time horizons depending on if you are looking for short term profits or getting into a long term investment at the best possible price. You can apply trend analysis to both rising and falling market and to bull to bear reversals and bear to bull reversals. The objective is always to stay a step ahead of the market.
Weekly Trend Analysis
Traders who are looking for profitable swing trades will commonly employ weekly trend analysis. They are not applicable to day trading because they only summarize sequential weeks but are ideal for those looking to capitalize on trends that evolve over weeks and months. They are the most commonly used chart for trend analysis. These charts show a single point on a graph, bar, or candle for each week represented. By summarizing each week, these charts average out daily trading “static” like when you use important moving averages.
Seasonal Trend Analysis
Some stocks, like retailers, have seasonal peaks and troughs in their businesses. Seasonal trend analysis is designed to pick up on these trends and predict associated price movements. This approach typically works well for cyclical stocks whose cycles are at least partly driven by the calendar.
Ratio Trend Analysis
This technique fits well with trading based on analysis of intrinsic stock value. Ratio analysis looks at company liquidity, profitability, and efficiency of its operations. Ratio trend analysis follows these issues over time. Clearly, when a company’s financials are getting steadily better, or worse, it is an indication that the stock price will be heading up or down over time.
Wave Trend Analysis
This method goes back to the 1930s when Ralph Nelson Elliott discovered that “fractal waves” existed in the market and could be identified and used to predict price movement. He gained fame in 1935 when he predicted a market bottom that (for others) seemed to come out of nowhere. As with other methods, this tool can be used for up-trending and down-trending markets and well as for market reversals.
Trend Analysis Formula Example
A simple example of trend analysis is to look at company profits over several years. The process starts by picking a base year and then comparing all succeeding years to the base.
This can be done directly or as a ratio.
Amount of change = Current year amount – Base year amount
Percent change = (Current year amount – Base year amount) ÷ Base year amount
The key to any formula is that you need to be using meaningful numbers and only do quality trend analysis instead of working with inadequate or misleading data!
What Will the Recovery Be Like?
And How Should You Invest?
As the coronavirus pandemic seems to be leveling off there are hopes for better times ahead. What will the recovery be like and how should you invest? We have written about how to approach investing at this time of crisis starting with our wondering how far stocks will fall. Will there be a stock market rally and, if so, how soon will it happen and how strong will it be? The answers to these sorts of questions hinge on just what society and the economy will look like in the weeks, months, and years to come.
What Will the Recovery Look Like?
J.P. Morgan writes about recovery from the covid-19 recession.
The global recession induced by COVID-19 might only be a couple of months old, but direct central bank intervention and some encouraging signs of recovery from China have sparked the debate of a “V-shaped” versus a “U-shaped” recovery in economies and markets.
The “best case scenario” will be a “V-shaped” rapid and rapid recovery, which has been the most common case over the last half century. The Financial Crisis and Great Depression are the prime examples of prolonged, “U-shaped” recoveries. The economic conditions that end up with a quick recovery are those in which there are sufficient cash and credit available to ramp up production, put businesses back in operation and get consumers to start spending again.
The case for a fast recovery is that central banks and governments have been quick to helicopter in money directly to whole societies. The case against a quick recovery is that just how soon the virus will allow the economy to ramp up again is not clear. When the initial stimulus checks run out, will there be more? How successful will attempts to reopen businesses in the face of a potential second or third wave of covid-19 infection?
To the extent that states and the Federal government are willing to issue debt in order to do things like rebuild American infrastructure, such attempts to mobilize the economy like in WWII could have long term benefits as well bring the country out of a year or two-year long recession instead of letting it sink into a decade-long depression!
The bottom line from J.P. Morgan is that long-term damage is likely from this crisis and that investors should consider this when choosing investments.
We routinely look at what Warren Buffett and Berkshire Hathaway are doing as a guide for long term investing. It is of note that Buffett is yet to make any large purchases and is still stockpiling cash!
Investments for a Slow Recovery
Consumer goods are still necessary during a recession. Thus Walmart is doing well as Dollar General and Amazon.com. Kiplinger lists twenty stocks for a recession and the list is heavily tilted towards companies that provide the necessities of life and not the luxuries. We wrote years ago about investing in beer as example of things that people will buy during both good times and bad! Mexico may have to do without Corona beer for Cinco de Mayo due to brewery shutdowns, but over the longer term, production will ramp up again and this sort of product will continue to make money for investors.
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Important Moving Averages
A commonly used market indicator for both stock trading and investing is the moving average. Investors who keep an eye on the important moving averages will be able to buy and sell at the most advantageous times. The value of using moving averages is that they help you see trends and average out the sort of brief market fluctuations that commonly confuse the issue. These averages are calculated over a variety of time periods and using several different methods. Matching the average that you use to your type of investing or trading is important.
Why Moving Averages Are Important
When you trade or invest in stocks, you need tools that help you stay in touch with price action. Even if you are investing in stocks for the long term, you would rather purchase at a low price instead of a high one. Why moving averages are important is because they smooth out the “static” of short term price movement.
Different Moving Averages
The most commonly employed are the fifty, one hundred, and two hundred day time periods for this approach. In general, the longer the time period the less the indicator will be affected by short term ups and downs. For many traders, the two day average is a benchmark for buying versus selling. Many only buy when prices are above that average and quickly sell when they are below.
The shorter time periods of five, ten, twenty, or even fifty days are useful in recognizing short term trends for swing trading. If your focus in on day trading, a ten day average that updates every hour is good.
Most Used Moving Averages
Which one of these time frames you employ will always depend on your investment and trading time horizons. Short time frames go with short term trading and longer periods go with timing long term investments. In addition, there are simple moving averages and more complex ones within each time frame. Your choice will often depend on whether you are using it as an indicator of the trend line or employing it as a baseline on top of which you use more sophisticated technical indicators.
A simple moving average is based on average prices while an exponential moving average gives more weight to recent price changes. You can set up yours based on opening or closing price, low price, high price, or a combination. Each approach has its advantages.
Moving Average Volatility
Traders use this tool to accurately predict market trends and reversals. While a simple average is easier to understand, it may be too slow in spotting price changes. The exponential average is often more accurate in predicting near-term changes. The same can be true of the double exponential moving average, aka DEMA. Volatility is smoothed out with longer time-frames but with a loss of short-term precision.
Moving Average Secrets
A way that many traders and investors get around the lack of precision with longer time-frames is to use the DEMA using this formula:
DEMA = 2*EMA – EMA(EMA)
When you use this approach with a hundred day or two hundred day average, you get the longer term average that smooths out daily price fluctuations as well as the more sensitive indicator for market changes. In addition, savvy traders often use both a shorter term average as well as a longer term one for a broader view of the market.
Moving Average Stock Strategy
While this approach is very valuable, it has its flaws as well. It is a backward-looking indicator that only sees the time-frame for which it is calculated. Thus it does not “know” about market cycles or fundamental analysis indicators such as new products or competitors in a market sector. The best moving average stock strategy is to combine this analysis tool with other methods.
Mastering Moving Averages
As with all trading and investing tools, practice makes perfect. We often advise being stock traders to use simulation trading until they get the hang of the various indicators and tools available. The same applies to mastering moving averages. Add the most important moving averages for more successful trades and investments!
If you prefer, here is the video version:
Is This a Golden Opportunity to Invest in Energy Stocks?
The coronavirus pandemic has ushered in the worst financial crisis since the Great Depression. Add to that the oil production war started by the Saudis and you have the lowest oil and gas prices in almost 20 years! It might seem like a good idea to get out of any investments related to oil and gas production. But, this terrible crisis, like every crisis, will pass. When that happens there will be a rebound. How fast or slowly that happens will depend on how quickly the virus threat recedes and how well the Fed and congress do in supporting credit markets and providing cash to work with. The question that we would like to pose is this. Is this a golden opportunity to invest in energy stocks?
Is This a Golden Opportunity to Invest in Energy Stocks?
Folks who have been thinking along the same lines include Seeking Alpha. In a current article they suggest that you invest in oil now.
COVID-19 seems to see the curve flattening. This is the largest source of the demand drop, so any recovery here would be significant.
We’re forecasting a recovery in oil prices now moving towards the first half of 2021 rather than the latter half of 2021.
In the short term, states may start to loosen restrictions on movement in a month or two, which would increase the demand for oil. This would start the recovery process for oil stocks. And, US oil producers are discussing cutbacks in production in the Gulf of Mexico and the Permian Basin (Texas). OPEC+ has agreed to cutbacks across the board.
However, for many of the oil producers the price of oil is now well below their breakeven point. Many, like Russia and Saudi Arabia, need the cash flow from oil and natural gas production to keep their economies going and to avoid social unrest. Thus, there may be a lot more pain in the oil sector in the coming months up to a year or so.
How Will the Recovery Look for Energy Companies?
The first thing to consider when investing in energy stocks is which of them will be solvent when the coronavirus crisis is over! Those with deep pockets may indeed benefit by purchasing their weaken competitors. We have mentioned in other articles that there is a good chance that the government will finally invest in long term infrastructure projects. If and when this happens it could give the US economy the sort of boost that war production did during WWII. That would increase the demand for oil, the price of oil, and prices of energy stocks. The Motley Fool suggests Exxon and Chevron as good bets for the long term and oil stocks to invest in right now. They have lots of cash and are still drilling with an eye on the future. To the extent that smaller companies have the cash or credit to survive into 2021, they may also be good investments. As always, look at intrinsic stock value when investing in stocks.
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IsThis a Golden Opportunity to Invest in Energy Stocks? – DOC
When Should You Start to Buy Stocks Again?
Economists are already saying that the coronavirus pandemic will drive the world economy to levels not seen since the Great Depression. In our article, How Far Could Stocks Fall, we noted that the 1929 stock market crash (which ushered in the Great Depression) was not limited to October of 1929. The market continued to fall until late 1932 by which time the Dow Jones Industrial Average had lost 90% of its previous value. Anyone who has cash in hand will have many opportunities to buy excellent stocks at bargain prices when the market bottoms out. But, when will that be? When should you buy stocks again?
When Should You Buy Stocks Again?
Market Watch quotes Mark Mobius who says that the market has not seen an absolute bottom yet.
“I don’t think we’re at the absolute bottom yet because the implications of this shutdown are incredible.”
Emerging-markets investing pioneer Mark Mobius made those remarks Tuesday in an interview with CNBC, putting him in the investing camp that expects an inevitable cascade of brutal economic data and corporate earnings hasn’t been fully discounted by investors.
“Although there are some opportunities to buy, I would say it’s probably a good idea to keep some powder dry for another downturn,” he said. “We might see a double bottom.”
So, when investing in stocks at this state of the coronavirus pandemic, should you ignore strong companies with good intrinsic stock value right now in hopes that their prices will continue to fall?
Comparisons to 2007, 2008, and 2009 versus Today
The S&P 500 was still near its peak in September of 2007 at 1525 and did not hit bottom until April of 2009 at 868. That was a 19 month slide of which the worse drop was in the fall 2008. By comparison the S&P 500 peaked at 3386 on February 19 of this year and fell to 2237 by March 23 before recovering to 2839 by April 14.
Our concern is that the coronavirus pandemic and its economic impact are just unfolding. Earnings are just coming in and they are awful. The extent of the damage is unclear but likely to be severe to the US and world economies. It is not clear how much government assistance will help in the long run and how badly consumer confidence will be shaken. The U.S.A. never really got out of the Great Depression until it started production to fight World War II.
Investors will need to keep these things in mind when deciding when to buy stocks again. If you had jumped in and bought two months after the start of the 2007 market meltdown you would have experienced most of the losses after you made your investments.
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The good news is always that if you pick a solid stock with excellent long term potential, you will in all likelihood see it recover and provide you with fantastic profits for years to come. The better news is that if you are patient and buy close to the market bottom your profits will be substantially better.
Is Now the Time to Invest in GE?
General Electric is an American conglomerate originally formed by a merger in 1880 of the Edison General Electric Company (started by Thomas Edison) and Thomson-Houston Electric Company. It was one of the original stocks in the Dow Jones Industrial Average in 1898 where it was listed most of the time for the next 122 years. The high point for GE stock was $59 a share in June of 2000 before the dot com crash. It fell to $23 a share by late 2002, rose to $41 a share by 2007 and fell during that crash to $9 in February of 2009. Although its stock price rose to $29 a share by the end of 2016, it was unable to control costs and was not bringing in profits. Its stock fell to the $9 range early this year and is down to $6 with the coronavirus pandemic.
Despite its troubles, GE is still a major player in US technology and manufacturing and, along with companies like Boeing, an important part of American industry. The question for investors is if they can pull things together, make a profit, and come back. Additionally, will they be helped by a bailout as America seeks to keep its technological jewels during these trying times? So, is now the time to invest in GE?
Is Now the Time to Invest in GE?
The Motley Fool raises the same questions in their article, Is General Electric Stock a Buy?
It would be easy to say that the best days of what was once one of the largest and most revered American corporations, General Electric (NYSE:GE), are behind it. After an abysmal last decade versus the S&P 500, it would be hard to argue otherwise.
More important than reminiscing about what GE once was is the question of where GE is going. The company’s cathartic 2018 included the near-eradication of its dividend from $0.24 per share per quarter in 2017 down to just $0.01 per share per quarter, a new CEO, and its removal from the Dow Jones Industrial Average, snapping a 100-year tenure.
That’s about as rock-bottom as you can get. Now, in 2020, it’s time to determine if GE has had its wakeup call, or if there’s more pain ahead.
Their analysis includes the fact that GE has cut its dividend to almost zero and divested itself of unprofitable divisions. More importantly, GE is an industry leader in many areas.
GE is a global leader in industrial manufacturing and technology, most notably in gas and steam turbines for power generation, hardware, software, and platforms for wind turbines in its renewables division, healthcare technologies for hospitals, and jet engines for its aviation division.
Considering its central position in many aspects of American technology and industry, GE may be one of the top companies to be considered for a bailout along with the likes of Boeing.
An aspect of this not mentioned in the analysis by The Motley Fool is that many companies will be badly hurt by a prolonged recession even after the pandemic recedes. Companies like GE that have a strong technological base in several high cost of entry businesses will be best positioned to prosper during an eventual recovery.
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Is Now the Time to Invest in GE? – DOC
