General Motors Company (GM) stock is biting the dust today following lousy U.S. auto sales for May. Turns out analysts, who were already expecting a modest decline in sales, weren’t pessimistic enough. The report revealed a whopping 18% decline in car sales for the month.
GM stock is down 3.8% in early morning trading, joining Ford Motor Company (F), which is dealing with its own bad news.
Shares of General Motors have been floundering this year. After today’s shellacking, GM stock is now down 11% year-to-date. Despite a few valiant attempts, GM has yet to shake the relative weakness that has hounded the stock since last fall. I’s uninspiring action has created a sea of chop in recent months, leaving little for trend traders to work with.
Indeed, the sideways drift in its 20- and 50-day moving averages attests to its trendless nature.
The persistent underperformance is illustrated by the descending trend dominating the relative strength indicator in the lower panel of the accompanying GM stock chart.
Click to Enlarge
In a world where weakness typically begets more weakness, General Motors is looking mighty ripe for a potential bearish play here. Particularly if you think the fundamental factors that drove auto sales into the ground last month will persist for awhile yet.
Further selling could send General Motors back to price zones at $29 and, ultimately, $27. Both are prior support levels that provide obvious price targets.
GM Stock: Puts for Profits!
Despite today’s volatility, shock demand for GM stock options remains subdued. That means put options can be purchased on the cheap if you’re looking for downside follow-through in the days ahead.
The July 31 puts should do the trick.
Buy the GM July 31 puts for $1.70 or better. The long put options give you the right to sell 100 shares of GM stock at $31 for the next 44 days. That will certainly come in handy should General Motors drop toward the $29 or $27 level. With the puts currently perched at $1 in-the-money, the stock need merely drop 70 cents from here by expiration to at least break even in the trade.
The profit potential is limited only by the stock dropping to zero, so consider the put option a profit-giver no matter how low GM travels in the coming month.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
