General Motors Has to Clear This Level to Rally on Earnings

General Motors trades higher on better-than-expected earnings. However, it needs to clear a critical level on the charts in order to continue higher.

Is it finally time to buy General Motors  (GM) - Get Report? That’s what investors are asking on Wednesday, with shares up more than 6% after earnings.

The automaker has been decimated over the past few months, along with Ford  (F) - Get Report and Fiat Chrysler  (FCAU) - Get Report. The Big Three are under monumental pressure as the coronavirus-induced economic halt puts their financials to the test.

For GM, the company reported non-GAAP earnings of 62 cents a share, beating estimates by 28 cents. Even GAAP earnings were positive at 17 cents ashare and almost double consensus estimates.

Revenue of $32.7 billion contracted just 6.1% year over year and beat analysts' expectations by more than $1.3 billion.

On the surface, it's a pretty solid quarter. Management expressing confidence sure helps too. That's even as the company suspended its dividend and buyback plan last month. 

The question now becomes: Can the charts make up some of the current damage?

Trading General Motors

Daily chart of GM stock.

Daily chart of GM stock.

With Wednesday’s action, shares of General Motors have climbed up to the 38.2% retracement and 50-day moving average.

Both of these marks come into play below big resistance, which is between $24 and $24.75. As for support, two levels stand out to me. That’s the $21 mark and the 23.6% retracement near $19.60.

With the broader market climbing all the way up to the 61.8% retracement, it’s clear that GM stock has badly lagged in this rally relative to its decline.

A top- and bottom-line beat and an optimistic management team should go a long way towards aiding the rebound. However, GM likely needs the broader market to hold up to some degree too, given how weak it’s been.

On the upside, I really need to see GM stock reclaim $23 and close above this mark. That will put it back above the 38.2% retracement and the declining 50-day moving average.

That’s the first step to getting a push up to resistance. If General Motors can get above $24.70, then the 50% retracement near $26 is in play, with a potential gap fill up to $28.50 on the table after that.

Remember though, it all starts with $23. If GM can’t get above that mark, it puts more downside in play.

A move below the 20-day moving average near $22 puts $21 support and this week’s low at $20.12 in play.

GM isn’t out of the woods yet, but it’s got a chance. Let’s keep an eye on this one this week.