Considering the post-election ramp in both automakers, a healthy pullback is due. Wednesday's negative news may be the beginning of this phase.
GM began its post-election rise from a very vulnerable position. The stock was at the very low end of its four-month consolidation pattern and looked headed lower. By the close, shares had recovered but were still below very heavy resistance. The next day saw a powerful follow-through move. GM surged more than 5% on Nov. 10 as a new rally leg got underway.
By last week, the stock had risen more than 23% from the November low and had entered extremely overbought territory.
For patient GM bulls, a healthy pullback will provide a low-risk opportunity to add to positions. A fade back down to the November peak would be a welcome event. This level marks the top of a very solid support zone. Just below is the initial post-earnings high near $34.40. This area also marks a one-third retracement of the entire post-election ramp.
If GM can regroup here while working off its overbought moving average convergence/divergence reading, an important base would be in place. From there a fresh rally leg that could eventually challenge the 2015 high would have extremely solid footing.
This article is commentary by an independent contributor. At the time of publication, the author was long GM.