NEW YORK (TheStreet) -- General Motors (GM) 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.