General Motors (GM) will be pushing higher in the coming weeks!By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 12 months taking the price from the March 18th lows of 2020 around $14 to the $63 all-time highs in the beginning of April, 2021. This represented an astonishing 350% gain for the stock in a year. However, the road to the above-mentioned all-time highs was not easy as it was filled with many different hurdles that the bulls had to overcome in order to keep pushing the price higher. There were few massive 15-20% corrective movements that took place during this strong uptrend, but the uptrend remained intact on all occasions. The stock has continued to attract a lot of investors’ attention as it remains the leader in the auto maker space. The way that General Motors has managed to evolve from an old fashioned auto manufacturer into an innovative, disruptive and forward looking designer, manufacturer and seller of all-around automobiles and auto systems globally has turned the stock into a go-to choice for both small retail and large institutional investors looking to add some auto and EV exposure to their portfolios.
The stock is currently sitting at $57 per share, which is roughly 10% below its all-time highs of $63 per share. We saw that the stock found a lot of buying interest around the $55 level on three separate occasions in the last 2 months – once at the end of March, then again at the end of April and the most recent one on May 4th. The confluence of both the horizontal and diagonal support lines at that mark has brought a lot of buyers back to the market. Investors saw the opportunity to buy into one of the leaders in the auto and EV space at a 10% discount and at a relatively low P/E and PEG valuation and didn’t think twice about it. The recent failure of the price to break below the $55 support back in early May and the subsequent sharp price appreciation could be taken as a signal for the presence of a strong bullish interest. This in turn confirms that the long-term uptrend has resumed and that the current bullish run will most likely take the price to new all-time highs in the coming weeks.
Furthermore, we believe that the new $1.9 trillion stimulus package accepted in the US, will inject a lot of liquidity into the market, which will be a great short-term positive for the equity market. We expect most of the big tech names as well as other market favorites to restore their favorable image among traders and investors in the coming weeks, thus we anticipate that the XLY will be one of the best performing sector ETFs in May. We believe that the stock market in the US currently holds a lot of intrinsic risks - COVID-19, the newly formed office in DC, the economic recovery, the post-Brexit economic reality for the UK and EU etc. - and that we could be in for a sideways and choppy price action in the coming months. However, our analysis shows that the winners would most likely continue to win in the stock market. General Motors has definitely been one of the biggest winners in terms of stock price appreciation throughout the last 12 months, thus we are strongly bullish on GM’s stock in both the short and long term. Additionally, we are seeing GM as a great reopening play in the post COVID world. The most recent price corrections should be treated as a great opportunity to buy this strong performing stock at a remarkable discount, which would in turn give every investor a chance to maximize his profits to the upside. Moreover, some of the technical indicators that we are monitoring closely on a daily basis (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) have already retraced from their overbought conditions and are signaling that the uptrend might be returning pretty soon. In addition to that, it is important to note the fact that the XLY and the Consumer Discretionary sector as a whole would continue to attract a lot of the investors’ attention moving forward, as consumers are sitting on record levels of savings and are eager to spend. This makes us optimistic for the future performance of GM as a meaningful part of the ETFs structure. Our analysis shows that as a result of the great leadership performance by the senior management of the company and the phenomenal fundamental positioning of GM through its newly updated portfolio of products, the stock will be able to hold its ground better than some of the other stocks out there in the event of a correction, and it would also significantly outperform the broader market once the uptrend resumes.
Acknowledging the fact that we are in a position to buy the stock at a 10% discount from the all-time high levels, we would like to point out that buying at these levels would be suitable for both risk-oriented and risk-averse investors. Thus, we are currently looking at the $55-57 range as a great accumulation zone for the stock. Our take profit levels in the coming months are going to be $65 and $75 respectively.
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