GM Stock Rallies Into Resistance After Strong Quarter

General Motors Company (GM) stock is trading higher by more than 2% on Thursday after the company beat second quarter earnings per share (EPS) expectations by $0.19 and met healthy revenue estimates. Even so, year-over-year revenue fell 2%, driven by lower China sales in the wake of the escalating trade war. The successful introduction of full-size light-duty pick-up trucks marked a high point for the quarter, with excellent profit and growth potential into the new decade.

The stock has been range bound since March 2018, when it failed the 2017 breakout above three-year resistance in the low $40s. This morning's uptick has reached this barrier for the second time, with a breakout requiring a leap of faith from skeptical investors due to the aging economic cycle and sales impact of de-globalization. This is especially true because all signs now point to tariffs against European automakers, a policy that is likely to trigger immediate retaliation.

Rival Ford Motor Company's (F) stock ticked lower after the news and is trading near a two-month low, illustrating a multi-year winner-loser relationship that has driven a steady customer exodus into GM automobiles. However, this closed-end system won't support long-term sales growth because both automakers need healthy foreign markets to accomplish that goal. Sadly, that doesn't appear likely, with trade barriers and higher material costs set to affect sales in coming years. 

GM Weekly Chart (2010 – 2019)

The stock came public in the mid-$30s in November 2010 after the company exited bankruptcy driven by the 2008 economic collapse and government bailout. A modest uptick stalled at $39.43 in January 2012, giving way to a decline that accelerated into December, dropping the stock into the upper teens. A recovery wave stalled in the mid-$20s four months later, yielding a downturn that broke the prior low by 28 cents in July 2013.

That marked the lowest low in the past seven years, ahead of an uptrend that broke out above the 2012 swing high at the start of 2013. The rally continued at a rapid pace into December, finally topping out at $41.85. Keep that price in mind because GM shares traded five cents above that level in the first hour of Thursday's session. Sellers returned in 2014, grinding out a downtrend that didn't bottom out until the August 2015 mini flash crash.

The stock completed a rounded correction into the 2013 high and broke out in October 2017, lifting to an all-time high at $46.76 a few weeks later. Price action carved a bull flag pattern into the first quarter of 2018 and broke down after President Trump fired the first shot in the China-U.S. trade war. Sellers took control through the rest of the year, carving an a-b-c corrective pattern that posted a two-year low near $30 in October. 

Bullish action tested that support level and turned higher in December, stalling within 35 cents of new resistance in March 2019. The stock has drawn a V-shaped pattern in the past five months, with this morning's opening gap completing the round trip into the March high. This two-sided price structure marks short-term resistance, making a breakout and rally above 2018 resistance unlikely at this time.

The on-balance volume (OBV) accumulation-distribution indicator has cooperated with bulls since the second half of 2018, lifting in a graceful uptrend that has now posted a series of all-time highs. This healthy sponsorship establishes a positive divergence predicting that price will soon play catch-up, lifting through the mid-$40s. The first sign of that trend advance will come when the stock trades above $42.

The Bottom Line

General Motors stock has rallied into February 2018's failed breakout for the second time while buying interest has surged, raising the odds that it will eventually test 2017's all-time high.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.