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Falling Knife Catching: The -16% rule

13 December 2018 by jbchevrel

General Electric Company (GE) was the big mover (again) today. The 5y CDS is 23bp tighter, making the name the best performer in the CDX IG, and by far (other single names are -6/+6). Cash is also c25bp tighter and the stock was is +7%, as I write. This rather bullish move comes mainly after 2 developments: 1/ the upgrade by the J.P. Morgan analyst. 2/ some early news of the sale of the ServiceMax stake. On the former, it is worth noting that the J.P. Morgan analyst now has for GE a price target of $6. Implying a drop from here of... -16%. A quick look in the rear-view mirror shows that since Nov 12, GE 5y CDS is unchanged. Over the same period, GE stock is... -16%. Elsewhere it was a rather firm day with CDS indices slightly tighter (Main -1 CDX IG -1). Noteworthy that volumes and liquidity were low, as we approach the end of the year.