General Motors (NYSE: GM) has been in downward trend since last December. The stock put in a double top at the $41.50 level and has been declining ever since. This has taken place as the Dow and S&P have been reaching new highs, not what you want to see if you are a GM shareholder. I received a bullish signal on the stock the other evening as the stochastic readings made a bullish crossover, but all I expect of the stock is to see it move back up to the trendline before it resumes its downward path.
On the weekly chart, we see that the 13-week moving average made a bearish crossover 0f the 52-week moving average at the beginning of April. When this happens to the S&P 500, I view it as a sign that we are entering a bearish for the overall market. If it holds true for General Motors stock, we could see shares fall another 15-20% before it reaches its first real layer of support at the $27.50 level.
The overbought/oversold indicators are in the middle of nowhere right now with neither the RSI nor the weekly slow stochastic readings being of any concern. However, the sentiment indicators are a concern due to their bullish levels.
The short-interest ratio is 1.4 which is next to nothing and the number of shares sold short has fallen from 77.7 million shares in January to 31.6 million at the end of April. The put/call ratio is at 0.51 which ranks at a 26th percentile for the past year. Of the 17 analysts following General Motors stock, 12 have it rated as a “buy”, three have it rated as a “hold” and two have it rated as a “sell”.
There have been lots of changes at General Motors since the government bailout in 2008-2009 and they changes were necessary for the company to survive. GM has changed most of their operating procedures and they have become more daring when it comes to design. Even with all of the changes, the company is still struggling to become fundamentally sound. The EPS growth over the last three quarters in -4% and for the last three years it is -12% on average. The sales growth is pretty abysmal as well with only 1% growth last quarter and an average of only 2% for the past three years.
Given the way General Motors stock has lagged behind the rest of the market for the last six months, the bullish sentiment toward the stock and the poor fundamental performance, I don’t see how the stock can move substantially higher. I would look to short the stock between $33.50 and $34.50 with a target of $27.50 on the downside and a close above the $35.75 level would be my stop-loss point.
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