General Motors Company (NYSE: GM), the US giant with more than two hundred thousand employees across the world and a diversified portfolio, is setting up for a jump as technical analysis favors a move higher.
Recent data has been negative for GM. This was largely due to the turmoil caused by China’s Yuan devaluation, which in turn brought a lot of trouble for foreign companies that sell to the Chinese market: hence how GM was affected as well.
This year, China has witnessed the lowest growth it has had in the last quarter of a century. As a result, GM’s Chinese auto sales are on a downward path. It is a bit surprising though as rivals like Toyota and Honda are posting really good sales numbers in the Chinese market. This is a clear signal that GM has to improve its local approach and according to the company’s management, things are going in the right direction.
What really stands out is the bigger technical analysis picture from the GM charts. The five-year chart shows that the market has formed a corrective wave in the last one and a half years, and this corrective wave is flat. Any flat has an impulsive move for the last wave c and now it seems that the impulsive move is completed.
This is a very bullish statement as it means that the current $30/share area is a nice area for a bounce, assuming the flat is completed.
In a way, it is quite coincidental how the technical analysis is aligning with fundamental analysis. As we all know by now, the Federal Reserve of the United States is releasing the interest rate decision on Thursday, and stocks should jump through the roof on a “no hike” scenario, as there are strong correlations between interest rates and equity markets.
Based on the above assumption, any option should be traded after the Fed’s decision, so our striking price depends very much on that fundamental factor.
Therefore, I am looking to buy a call option for the GM after Thursday’s Fed decision, and only if the Fed does not hike rates. The expiration date should be the end of September, as the intention is to let markets digest the Fed decision first.
The interest rate decision will be followed by a press conference, so it is very possible that we can find a better striking price on the press conference as Mrs. Yellen will try to downplay a “no hike” decision. Time will tell on this.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
