GM Stock: Bullish Breakout
General Motors Company (NYSE:GM) stock is soaring. The news that created the panicked buying in this automaker is that the company reported its auto sales for the month of November, which came in 10.2% higher than this same period last year.
Every division was firing on all cylinders, contributing to this growth. The guidance going forward was equally as impressive and, as a result, GM stock was up 5.82% on this abundance of good news.
This incredible news drove investors to fall all over each other, scrambling to purchase GM stock. This price advance has done quite a number on the General Motors stock chart. In my previous report on GM, I outlined that there was a very large constructive pattern that was in play and that the momentum indicators supported a bullish breakout of this pattern.
When I first looked at the GM stock chart, I assumed that perhaps autonomous-drive vehicles and the steps that General Motors is taking to get involved in this space would be the catalyst to complete this bullish pattern. Perhaps this new emerging tech was a key piece of the puzzle. However, it seems that the true catalyst is that GM is just a well-run company, with top-notch products that global consumers just cannot get enough of.
This frenzied buying has completed the constructive pattern, and a rally is set to ensue in General Motors stock.
The following General Motors stock chart illustrates the constructive pattern.
Chart courtesy of StockCharts.com
The GM stock chart above is a textbook example of what a healthy constructive price pattern should look like.
Healthy price patterns are littered with impulse waves and consolidation waves. An impulse wave takes the price to new heights, and this wave is characterized by a linear motion. When an impulse wave is completed, the terms “overbought” and “oversold” are used to describe the conditions that won’t allow the price proceed.
These conditions are measured with internal indicators and oscillators. In order to alleviate these conditions, the price needs to pull back or trade sideways until the prevailing condition has been unwound. This price action is exactly what characterizes a consolidation wave.
When all the extreme price conditions have become alleviated and the consolidation wave is complete, a new impulse wave can develop. The benefit of identifying a consolidation wave is that it could be used to set up an appropriate trading strategy that would execute when the wave is completed, indicated by a price breakout.
The GM stock chart above illustrates that the recent price surge has taken General Motors stock above the resistance line that defined the consolidation wave. This constitutes a breakout and, as a result, a new impulse wave is now set to develop.
These patterns are also constructive in terms of projecting a potential price objective. The theory behind these waves is that, once a consolidation pattern is complete, the new impulse wave that is set to develop tends to mirror the initial impulse wave in length and duration. Putting this theory to work produces a price objective of $44.00 on General Motors stock.
The lower panel labeled “MACD” on the above chart is the moving average convergence/divergence indicator. MACD is momentum and trend-following indicator that is generated when signal-lines cross. These crosses are used to distinguish between bullish and bearish momentum. This signal turned bullish in late summer and suggested that bullish tailwinds were prevailing. This increased the odds that a bullish breakout would occur. This signal is in its infancy and suggests that the bullish move toward a higher price has only just begun for GM stock.
Bottom Line on GM Stock
The completion of the price pattern on the GM stock chart is the reason why I am bullish on General Motors stock. The price action and indicators suggest that higher prices are yet to come.