Pullback Ahead for GM

This article originally appeared on RealMoney.com on Sept. 3, 2014 at 3:31 p.m. To read more content like this AND see inside Jim Cramer's multi-million dollar portfolio for FREE... Click Here NOW.

General Motors  (GM) is setting up for another pullback. The stock has been in rebound mode since early August but now appears to have run out of steam.

GM bottomed just below $33.00 nearly four weeks ago before tracing out a very light-volume rally. Yesterday the stock put in a new rally high after gaining 6% off the Aug. 7 spike low. GM is off only slightly today, and volume is still relatively light, but the price action is beginning to take on a more bearish look.

In late July, GM took a major hit with the help of a big surge in trade. Shares dropped over 4.4% on the July 24 after disappointing results for the second quarter.

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This powerful breakdown, which began with a huge downside gap, lasted another six straight sessions before the momentum ran out. Selling pressure eased as key support near the May low came into play.

In early August, GM drifted below the May bottom but quickly reversed to close well off the day's low. The rebound began the next day, and by yesterday the stock had retraced 50% of the earnings-inspired flush.

I believe that GM's rebound is over and another period of weakness will soon begin. The stock has been unable to attract fresh bulls since reversing on Aug. 7 and is now under the pressure of declining 50- and 200-day moving averages.

As this pullback plays out, I expect the area of the May/August lows to be tested, but I doubt this key support area will hold. A drift down to the current 2014 lows set back in April at $31.70 is the level I expect to see before a significant bottom can be put in.

A fresh oversold reading and the drying up of selling pressure will signal a potential low-risk buying opportunity.

I am not in the stock but will become very interested as the $32.00 area is tested. Until then, I regard the $35.30 to $35.60 area as very heavy resistance. I also expect volume to pick up once last week's lows are taken out.

 

At the time of publication, Morrow had no positions in the stocks mentioned.

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