NEW YORK (TheStreet) -- General Motors (GM) - Get Report dropped over 3% yesterday after analysts at Goldman Sachs downgraded the car company. This was the second-steepest one-day decline for the stock this year and has put it in a very vulnerable position.
Shares closed Wednesday just 60 cents above major support. If yesterday's sharp selloff attracts enough downside momentum to drive the stock below the $34.50 area, a deep selloff could quickly take hold.
Back on April 23, GM suffered a 3.35% loss, its worst loss of 2015. The earnings-inspired drop began with a huge breakdown gap. The high-volume selloff eventually pushed the stock down to its 200-day moving average.
GM built a base just above this long-term support level before mounting a relief rally in mid-May. The stock retraced a third of its drop from its 2015 peak but fell just shy of filling the April 23 gap. GM made another attempt to fill this gap at $36.65 on Monday but failed once again. As the stock drifts further below this heavy resistance area, a monthly double top in May and June is taking on an ominous look.
GM will soon retest its 200-day moving average. Without a significant jump in bullish interest, which has been lacking for months, this key support zone will likely fail. A close below $34 could open the door to a drift down to the 2015 low, set back in late January at $32.40.
For GM bulls, it may prove wise to wait out a test of the May low and 200-day moving average before putting money to work. An opportunity to buy GM at much lower levels may be just ahead.
This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.