General Motors Looks Vulnerable to a Deep Selloff
Shares of General Motors (GM) - Get Report are barely holding on to key support. If the stock is unable to recover its 200-day moving average soon, the overhead pressure could take control of the action. A close below $30 would open up the downside to a considerable move.
For GM bulls, the the stock may prove a frustrating long over the coming weeks.
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In mid-March, GM failed to clear its declining 200-day moving average as its powerful rally off the February low began to run out of steam. The stock pulled back during the second half of the month and into early April before finding its footing just above the April low. After putting in back-to-back weekly lows near $29, the stock mounted a fresh rally that drove shares well past the 200-day moving average. This rally stage failed just below a major resistance area near $34, leaving behind an ominous spike high as a result.
GM has been steadily drifting lower since and was unable to attract bullish attention as it attempted to build a new base near the 200-day. After breaking below this level early last week, overhead pressure has been building. Without a move back above this area soon, GM longs will begin to loose confidence in a big way.
In the near term, GM bulls should keep a close eye on the $30.30 area. The stock closed yesterday above this level, but a clear break could change the picture to a much more negative setup. This key area includes the February high as well as an important trend line that links the February and April lows. With upside momentum wiped out and a divergent moving average convergence/divergence high in place, the path of least resistance is beginning to look lower.
For patient GM bulls, this could mean that lower entry opportunities are just around the corner. The initial layer of support is the April low, just above $29. A hold here would be an encouraging sign.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
