The Upside Price Move in GM Stock Has Only Begun
General Motors Stock: Up, Up, and Away
There are two distinct reasons why I am bullish on General Motors Company (NYSE:GM) stock. The first reason stems from the company’s foray into the autonomous driving segment, and the second—and most important reason—stems from the indications that I have garnered from the GM stock chart.
Companies need to embrace the future, and General Motors is doing just this. The company’s rivals are venturing into the autonomous driving segment, and GM is right on their heels, quickly adopting this new, potentially disruptive technology.
It is reassuring knowing that, if this segment of the auto market does progress, General Motors will be there on the forefront with the other autonomous driving developers. This provides solace to investors that GM won’t be left behind like the typewriter was when the disruptive technology of desktop computers was developed.
The real standout reason why I am so enamored with GM as an investment is that the price chart is very compelling, as it is suggesting that much higher stock prices are likely. I generated this bullish view using technical analysis.
This method of analysis is predicated on the notion that historical price and volume data can be used to discern trends and forecast future prices. As ridiculous as this method may sound, I have found great success in using it.
The following GM price chart illustrates the bullish price action that developed late last year.
Chart courtesy of StockCharts.com
General Motors stock was trading sideways for the better part of 2016, and any attempts at a sustained move above $32.00 was thwarted. This price action produced a defined level of resistance at this level, and this price level is highlighted on the chart above marked as resistance.
In August 2016, a golden cross was generated. A golden cross is a bullish signal that is produced when the 50-day moving average, highlighted in blue in the above chart, crosses above the 200-day moving average, highlighted in red. Traders use this signal to confirm that a bull market is on the horizon, and it is not uncommon for a price to accelerate soon after such a signal is generated.
It is not a coincidence that GM stock broke above resistance in November 2017, soon after the golden cross was generated. This breakout signaled that the sideways trade had come to an end, and that a new trend toward higher prices has begun.
This new trend contains price action that is defined by higher highs and higher lows, and General Motors stock quickly appreciated to the tune of 19%, after resistance was finally broken.
The following GM price chart illustrates that this breakout was in the context of a much larger bullish trend.
Chart courtesy of StockCharts.com
The GM price chart above illustrates a large bullish trend that contains constructive price action.
Constructive bullish price action consists of impulse waves, which advance the price, and consolidation waves, which serve to alleviate overbought conditions and set up the next impulse wave. This alternating wave structure characterizes the DNA of a trend that is sustainable.
The impulse wave is highlighted in green in the above chart, and it illustrates the surge in price that took GM from a share price of $16.54 to a high of $36.98. The consolidation wave is highlighted in purple, and it illustrates the sideways action that followed as overbought conditions were being unwound.
When I scan for potential investments, I specifically look for consolidation waves. The benefit of identifying these waves is that, not only when they are completed do they identify the next direction in the trend, they are also instrumental in producing 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. Applying this theory to the wave structure above produces an initial price objective of $44.00.
The chart above illustrates that the recent surge in price has pushed General Motors stock above the resistance line that defined the consolidation wave. This constitutes a breakout, and it suggests that a new impulse wave is now in development.
If that wasn’t enough, the indicator in the lower panel of the above chart, labeled “MACD,” is now suggesting that higher prices are likely. The moving average convergence/divergence (MACD) indicator is a trend-following momentum indicator that uses signal-line crosses to distinguish between bullish and bearish momentum.
The bullish signal that was generated in October 2016 suggests that bullish momentum has once again overwhelmed any bearish momentum, and as a result, the path of least resistance is toward higher prices. This indicator has been effective in identifying the structure of the wave that is to follow, and the bullish cross reinforces the view that a new impulse wave pattern is set to develop.
Couple this with the fact that this signal is in its infancy, and it serves to suggest that the bullish move toward higher prices in GM stock has only begun.
Bottom Line on General Motors Stock
I am bullish on General Motors stock because the price action and indicators on the GM stock chart support this view. Since my views are based on these indications, my view will remain bullish until these indicators suggest that another view is warranted.