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GENERAL
ELECTRIC PREDICTED THRU 2004 Background: General Electric consists of fourteen separate and diverse divisions including electric appliances, transportation (jet engines), plastics, financial and medical services. It is in very competitive markets worldwide and is projected to have average growth (< 8% per year). There has been a solid return on the stock in the past two years but it faces stiff competition in the future from Asia. Research Results: The daily closing prices from Jan 1988 were used in the dataset to determine the key cycles in General Electric’s price pattern and used for the prediction assuming the long-term cycles continue to hold. The largest cycle currently in the price data is a 800-day cycle which is approaching a top in Oct 2004. Chart 1 shows the 800-day cycle of General Electric from the period beginning in Jan 2000 thru Dec 2004. It was found the overall (absolute) tops and bottoms tend to follow this cycle. There are several other significant cycles in the waveform including 435-day and 510-day cycles. Chart 2 shows a prediction of General Electric daily closing prices for the remainder of 2004 (shortest cycle is 5 days). General Electric appears to be starting a minor rally which should carry the stock to a final top in Sept/Oct 2004 which coincides with a peaking of the 800-day cycle. The time to buy this stock was at the bottom of the 800-day cycle in October 2002. The stock has been trading in a range from 29 to 35 for a fairly long period. Chart 3 shows the predicted (rough estimate) future price action of General Electric for 2005 if the current long-term cycles continue to hold. There is a coming major downside trend in this stock, which tends to follow other predictions of a coming drop in the NYSE Composite Index by mid-2005. Unclear if the top in 2005 will match the top in 2004. Summary: 1. General Electric is defined as a “cyclical” stock except “Wall Street” never bothers to tell you what the real cycles are so you will buy and hold while they easily play puts and calls and walk away with the lion’s share of the profits. The top ten mutual funds/institutional holders of this stock hold over $54 billion in assets. This is easy money for the right fund managers and perhaps a Wall Street “wolf pack” may have been doing this in certain Dow Jones components since the mid-1990s (and a lot earlier). 2. A downtrend is coming up for General Electric after Sept/Oct 2004 but there maybe one more top in early to mid-2005. If you own this stock, consider writing calls at a top in Sept 2004 if you wish to continue holding the stock. You may wish to hold-off any further purchases of this stock to see if a possible low occurs in Nov/Dec 2004 (averaging?). However, the “real” buy point will not occur until the bottom of the 800-day cycle in 2006. This is a two-year cyclical stock. 3. Unclear whether the electric appliance/manufacturing divisions will continue to retain reasonable profit margins against increasing foreign competition. Is General Electric quietly moving certain mfg operations to Asia? This is a tough competitor in foreign markets with a global reach but I would expect additional consolidation of its businesses to retain any real growth beyond 2006/2007. The centralized “research center” has certain disadvantages to fielding innovative products in a company this size. The product lines may need to have a Return On Investment (ROI) of over a billion dollars to match up with marketing and sales and it is difficult to retain the “bright spots in research” in these companies. 4. The 800-day cycle in General Electric follows (or contributes) to the 800-day cycle in the NYSE Composite Index. This same cycle appears (with different phasing) in the oil markets and many DJIA components. The SEC/Congress should have banned “shorting stocks” of major cyclical stocks in the DJIA over 30 years ago to stop the foreign and domestic “predators” from taking the money of its employees and shareholders. These large caps should have a well-defined formula based on earnings for their price and stop the legalized theft. Of course, the 10,000+ Government statisticians have never been asked to do that for the public have they Mr. G? 5. The 800-day cycle reached a top in May 1991, May 1994, Oct 1997, and Dec 2000. In all cases there was a decline in the GE stock values. The next date is Sept/Oct 2004 for a top – so let “those with eyes see and those with ears hear”. 6. General Electric has been purchasing “cash cows” for divisions with a long-term strategy of maintaining a global posture in “growth areas” but a lot of the old guard is gone and growth is limited in Western markets. It will be interesting to see if the current senior management can really adapt to all the fun that is coming in the next ten years. General Electric’s growth for the next decade may well depend on their strategic business decisions regarding China. I have always liked their solid middle management on the DoD and electrical appliances side.
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