On Monday, both General Motors (GM) and Ford (F) reported their January sales, and both came in with rather disappointing numbers. Ford announced that its January U.S. sales fell 7.1% to 154,000 units, and General Motors announced that its January U.S. sales fell 12.0 percent to 171,000 units. GM stock and Ford alike were sold off as a result — though their action wasn’t helped by the already weak broader markets.
Overall, U.S. car sales are reported to have fallen to a three-month low for January, which equates to a seasonally adjusted annual rate of 15.24 million. This compares to a rate of 15.4 million in December. Both General Motors and Ford said the unusually harsh winter weather this year has hurt sales, but investors and traders couldn’t help but wonder whether it was more than weather. In terms of the outlook, General Motors still sees a moderate rise in sales for 2014 despite the weaker-than-expected numbers from January.
With Monday’s 2.3% drop, GM stock fell through an important next support level after already signaling concerning weakness two weeks ago.
On the below multiyear chart, which looks at GM stock back to its post-crisis IPO in November 2012, the breakout we witnessed in December 2013 was in hindsight a fake-out move, at least in the near term. Since its December highs, GM stock is now more than 15% lower — a trend that doesn’t look to be turning around immediately, particularly since General Motors shares snapped their August 2012 uptrend on Jan. 24. GM stock also broke its 200-day simple moving average for the first time since April 2012, and this type of development often doesn’t bode well for the stock’s medium-term price action.
GM’s concerning price action of late is better visible on the daily chart. In essence, GM stock is now close to having erased its entire October-December rally, and that’s not bullish for the time being. Much like the broader market, GM stock seems to be in a better mean-reversion mode; it’s currently in the process of consolidating its big rally since August 2012. Often these types of mean-reversion periods consolidate down to at least the 38.2% or 50% Fibonacci retracement areas of the rally, which for GM stock would mean that better support areas are around the $33 level and then again closer to the $30 area.
For my part, while understanding that GM stock could always stage a violent oversold bounce, I am not interested in buying the stock here until it at least finds one of the aforementioned support areas or begins to consolidate sideways in a more constructive manner.
Like what you see? Sign up for our daily Beat the Bell e-letter and get investment advice delivered to your inbox every morning!
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.