by Serge Berger | December 10, 2013 8:15 am
The U.S. government on Monday sold its remaining stake of automaker General Motors (GM), causing a jump in GM stock as an era of bailouts in the industry came to an end.
During the financial crisis, the U.S. government was forced to rescue the country’s auto industry as both General Motors and Ford (F) suffered from debt burdens and a shrinking top line. However, the government-sponsored bailouts did allow the car manufacturers to return to profitability; for example, GM saw a profit of $4.3 billion through the first nine months of 2013. (For what it’s worth, the rescue of the company still cost U.S. taxpayers roughly $10 billion.)
With the government out of the way, GM stock can now begin featuring a dividend, which could bring about a fresh set of income investors.
With Monday’s 1.8% rally, GM stock hit a fresh post-IPO high of $40.90 on a daily closing basis, leaving the charts looking rather good through the lens of a multiyear perspective.
On Nov. 17, 2010, General Motors raised a total of $20.1 billion between $15.77 billion in common shares and $4.35 billion in preferreds.
After its IPO, GM stock initially rallied around 19% until topping out in January 2011 near the $39.50 mark. The post-IPO flurry wasn’t to last, however, as General Motors lost 50% of its value over the ensuing nine months, partially from investors having received shares in the IPO, selling their stakes in a quick flip.
After spending the next 10 months in a choppy bottoming building process however, GM stock in July 2012 again re-tested the 2011 lows and began to move higher. GM rallied more than 100% from there until in mid-November of this year, finally again reaching the early 2011 highs.
On the daily chart, note how GM stock — after bumping into the multiyear resistance area in mid-November — began a technically sound and tight consolidation phase before last Friday, then broke past resistance and headed to fresh all-time highs. This latest two-day move in the stock is constructive through the longer- and nearer-term lenses, yet for investors with medium-term time frames of a few months, it might simply be a breakout fake-out.
In other words, while ultimately, given the technical patterns in play, GM stock is likely to move higher in coming years, over the medium-term, shares could do more backing and filling in coming months before leaving the 2011 highs behind for good.
As always, pick and understand your time frames, and half the battle in this business is won.
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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.
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