Car stocks have not had a great year.
Between General Motors (NYSE:GM) strikes, Elon Musk’s public shenanigans at Tesla (NASDAQ:TSLA) and Ford (NYSE:F) and its underwhelming management, the stocks had been laggards until recently. They are now playing catch-up — especially Tesla — and there may still be better days to come, especially for Ford and GM stocks.
This is not to say that the car stocks haven’t had their shining moments. All three have rallied impressively this year, but usually it was coming back from shellackings that preceded the runs.
However, let’s take a look at all three in terms of trading as we head into 2020.
Car Stocks to Trade Into 2020: Tesla (TSLA)
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Tesla stock had its scary moments this year. At its worst, TSLA fell to $177 per share, and even at that level, few experts dared to declare it an upside opportunity. Mid-summer, while it was still mired, I wrote about the bottom being in. Since then, it has rallied nearly 113% — so that opportunity has clearly played out.
From here, the upside will require a lot more hard work than getting up to this point. Recently, though, something changed with sentiment, and that’s a powerful motivator. Many of Tesla’s earlier haters are now bullish on TSLA stock, and this 180 degree flip could help carry this breakout from around $380 to fill its target near $400 per share.
It may already be too late to go long here from a trading perspective. This is not a call against the future prospects of Tesla because clearly, I was bullish on it when there were few bulls on Wall Street this year. My comment is merely pointing out the short term resistance zone that is above current price.
The next level to watch is around $388, where it has failed miserable in August of 2018 and about a year earlier than that. The sellers there will have confidence that they can repeat performance. But, if the bulls can stay above $374, they can extend their higher-low trend to prevail and claw back past prior glory. Tuesday’s high of $385.50 is the next immediate hurdle this week.
The long-term success of Tesla stock depends on how well management can navigate away from them being a car company and back into being a technology company with emphasis on energy. Otherwise, this stock carries too much premium relative to all other car companies — and Wall Street will eventually reset its price. But, for now, the long-haul thesis is still that Elon Musk is setting Tesla up to be a game changer.
Ford (F)
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Ford has disappointed investors many times this year. It had several bullish setups in the second half that fizzled even as recently as last week. On Monday, Ford stock was once again butting up against a resistance level that if bulls can breach, would serve as a trigger for a substantial rally.
The upside target can be at least another $1 or more from there, but, with resistance zones along the way. This is an opportunity for equity holders to recover some capital and for active traders looking for breakouts.
With the general markets having just set new, all-time highs, it’s best to chase specific charts with breakout potential. Ford stock fits the bill, as it is coiled with several fails but from higher-lows. As long as the bulls are in charge, then the dips will serve as reloads for stronger attempts. This is how big breakouts happen after several failures.
Nevertheless, because this has been a serial disappointment, I would make sure to set tight stops. If Ford stock falls substantially below $9.10, the set-up posture would be ruined.
General Motors (GM)
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General Motors stock seems to have benefited from better management decisions than Ford. Under the leadership of CEO Mary Barra, GM has tactfully navigated through tough operational and political headwinds. However. The GM stock is still positive for the year in spite of tremendous losses stemming from the longest strike for United Auto Workers (UAW) since the 1970s.
So, it is no surprise that it lags the other two car stocks today by at least 10 percentage points; So, the potential is for it to catch up. If the GM-stock bulls can exceed current resistance near $36.40, they would trigger a bullish pattern to target $37.50 and $38.50.
GM is a cheap stock selling at a 5.9 price-to-earnings ratio. So, the buyers could gain confidence and ignore the resistance levels. This is a trading opportunity that could turn into an investment. But, the first step is for GM stock bulls to hold the price at least at $35 per share or else the sellers would regain control of the reins.
As good as the upside opportunities are for these three stocks, it is important to note that the equity markets are at all-time highs. So, the downside threat will loom for a while until Wall Street consolidates the action to form a better base. That being said, investors should temper the enthusiasm and make trades in tranches — not all at once. This leaves room to manage risk in case the price action hits a snag.
After all, we are still in full headline mode in spite of the recent deals on tariffs and Brexit.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
