GM Takes a Stake in Nikola - How to Trade the Stocks

General Motors is taking a stake in Nikola as the two form a strategic alliance. Let's look at the charts for both GM and NKLA.
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The auto space was lighting up the headlines in the finance space on Tuesday. It wasn’t just Tesla  (TSLA) - Get Report this time, as General Motors  (GM) - Get Report and Nikola  (NKLA) - Get Report were both moving higher on the day.

Both rallies were significant in their own respects, which came as GM and Nikola agreed to a strategic partnership. More specifically, General Motors will also take an 11% stake in the upstart automaker.

General Motors shares are up 10% on the day as a result, while Nikola stock is up an impressive 50% on the day.

The rallies come in the face of another notable decline in the overall stock market, as well as a 17% drop in Tesla after it was announced on Friday after the close that the company will not be included in the S&P 500.

Trading General Motors Stock

Weekly chart of GM stock.

Weekly chart of GM stock.

Shares of General Motors are making a multi-month high with Tuesday’s rally. Not surprisingly, this name hasn’t traded well this year, literally hitting its 2020 highs on the first trading day of the year.

With the rally, GM stock is clearing $32 and the 78.6% retracement from this year’s low to the 2020 high. However, it’s struggling with the 200-week moving average.

From here, bulls need to see which way this name tips. If it rotates above the 200-week moving average, it may climb back to the 2020 high at $36.93. On the downside, a rotation back below $32 puts the 50-week moving average in play near $29.50, followed by the 61.8% retracement and 200-day moving average near $28.30.

Trading Nikola Stock

Daily chart of Nikola stock.

Daily chart of Nikola stock.

Nikola stock has been a bit more volatile than General Motors — which is no shocker to most traders.

The stock had bounced nicely from the July lows near $30. However, after being rejected from downtrend resistance (blue line), Nikola stock looked like it was prepped for another notable decline and possibly a retest of $30 support.

We didn’t get to find out if it would hold as support, though.

With Tuesday’s surge, the stock is breaking out over downtrend resistance, as well as clearing the $47.50 to $50 area. However, it’s being rejected from the 38.2% retracement, (as measured from the July low to the June high).

If Nikola cannot clear this mark, it may need to test down into the 20-day and 50-day moving averages. If it can, it opens the door to $61.50, where it finds the 50% retracement. Above that and the 61.8% retracement is in play at $69.16.

Keep it simple. Above the 38.2% retracement and Nikola can keep rallying. Below $47.50 and a test of its key moving averages is possible.