Should You Buy General Motors on Earnings Rally? See This Chart

General Motors is rallying on better-than-expected earnings. Is it a buy? Let's look at the charts for the stock now.
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General Motors  (GM) - Get Report was moving higher on Thursday, up almost 5% after delivering a solid third-quarter report.

Earnings of $2.38 a share easily beat expectations of $1.38 a share, while revenue of $35.5 billion was roughly in-line with expectations and flat year over year.

The beat was led by a resurgence in domestic demand for pickups and SUVs, something that was surprising both analysts and investors. Despite the pandemic, demand was solid for General Motors this quarter.

For its part, Ford  (F) - Get Report was up more than 4% on the day as well, as it too enjoyed GM’s results. But it’s not as if Ford hasn’t done its part. The company reported pretty solid results last week.

Can the group maintain its momentum and can GM continue to accelerate higher?

Trading General Motors

Daily chart of GM stock.

Daily chart of GM stock.

While the stock is trading much better, GM isn’t necessarily in full-on breakout mode.

My first observation with GM stock isn’t the post-earnings rally. In fact, it’s something that happened several weeks ago when shares closed above the 200-week moving average.

This mark had been multi-year support, gently guiding the stock price higher. In February, this level gave way, ushering in an extreme drop in price. In back-to-back weeks in September, GM tried to reclaim this level but failed to do so both times.

After finally reclaiming this mark, General Motors stock has been holding the 200-week moving average as support. This is the action that bulls were looking for.

Now they want to see if GM can push through $38 resistance. This level was resistance last month, and with a few short-term exceptions, was also resistance for most of 2019. If the stock can push through this mark, it puts the $40 to $42 area in play.

On the downside, bulls really need to see the 200-week moving average hold as support.

Admittedly, there are other support levels below this mark. However, this level has been so vital in terms of where supply and demand (resistance and support) can be found that GM must hold this level for bulls to remain in control.

Should it lose the 200-week, I want to see that GM holds the 10-week moving average and uptrend support. Below opens the stock up to a dip to the 50-week moving average.