Fact is, General Motors Company (NYSE: GM) stock is now in its 31st week of trading since its IPO; and it just made its 6th new low in the past 11 days, by breaking the previous recorded low of $28.29 about one hour before today's close.
As a point of reference, this is well below its $33 offering and its $35 opening trade. That is significant for traders and investors alike.
Furthermore, GM stock has not only broken all levels of IPO price support, the government’s investment in GM is not profitable either. Again, I’m sorry, I should have included the taxpayers as the real owners in that investment.
The sell-off action of the general market as noted by the futures market, the ETFs like the SPY, DIA, QQQ and IWM is still not helping. All have been down, in many cases as a response to debt issues in Europe with Greece, where the Euro has fallen. According to CNBC, this will be the 7th straight down week.
Regardless of what you measure or choose to spin, that doesn’t bode well for auto stocks, let alone GM, which is already in a weak price-technical position.
Fundamental vs. Technical Approach
Where GM stock goes from here is anyone’s guess. However, a technical analysts such as myself looks for the price action to be reflected in the moving averages. Unfortunately, GM as an IPO doesn’t have a tremendous history to go on; meaning there are no price supports where buyers came in in the past. All we have are round numbers and a book price, if that can be truly trusted.
Even if you choose to look for a fundamental reason like a growing auto business in China, or a great acceptance of the Chevy Volt, you still might be disappointed.
For the record, the technical analysts look at the dynamics of price as a proxies for investor sentiment. It is also well known that the stock market negates past information and looks forward to the new. And when we look with that set of glasses on, GM stock is still subject to general market and economic forces which are beyond its control.
Again, there are no real limits to the downside for GM stock except zero level and its so-called book value. Of course, GM stock has some book value, but it also has billions in debt. So, the only real recourse for traders and investors alike is to use technical analysis from an absolute reference point.
Again, as a trader, I cannot ever know for sure what will happen. And, again, that may not be what you want to read, but it is the truth. Fact is, the market knows best, not me.
So, how may we look at Mr. Market this week to glean what will happen? As I wrote two weeks ago, the general market will lead GM, not GM lead the market; and my opinion on that has not changed. I thought perhaps the futures market would guide the general market to rise, but that did not happen.
Perhaps the dollar will set the stage, or oil will send a clear message. Well, the Euro dropped and the US dollar became the safe haven, not necessarily gold and silver to any great degree. And the drop in the USD caused oil to go down as oil is priced in dollars.
Bottom line is, GM stock is still in a tough position technically, and has been for many weeks. We may find a buyers starting to come in at or slightly below this new low of $28.29, but that is a guess based on the daily chart exhibiting the start of a sideways channel. The weekly chart, however, has not confirmed this, only new lows are in vogue.
And since there are no price dynamics below this latest low to guide us, oversold conditions can remain that way for a long time. My greatest concern for GM stock would be if the general market acted bearish through the summer, or we get a double dip in this recession.
Reiterating what I wrote a few weeks ago, all we have below today’s new low at $28.29 are absolute numbers like 25, 20, 15, etc.; or percentages of the IPO price, like one-half of 33 or 16.5; or two-thirds of 33 at 22. So, regardless of what you choose to prognosticate for GM stock, all methods at this point are subject to greater market forces.
For the record, though, my own private channel breakout method still shows a bearish trend bias, but the price distance between the new lows appears to be flattening a bit.
Full Disclosure: At time of publication, Sherosky, creator of the auto sector charts for TN, is neither long or short with the mentioned stocks, though positions can change at any time. None of the information in this article constitutes a recommendation, but an opinion.
About the Reporter: After 39 years in the auto industry as a design engineer, Frank Sherosky now trades stocks, futures and writes articles, books and ebooks like, "Perfecting Corporate Character," "Awaken Your Speculator Mind", and "Millennial World Order" via authorfrank.com. He may be contacted here by email: [email protected]
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