This piece was originally posted on March 24 for Premium Members of The Lyons Share.
General Motors is testing a plethora of potential chart support near the $34 level.
A couple firsts here. To start with, we will begin reserving some of our Charts Of The Day exclusively for members of The Lyons Share. The first edition is today’s chart of General Motors (GM). That brings us to another first. We plan to issue periodic charts of single stocks, though, on a very select basis. The reason we do not post more single stock charts is because we do not use them in our management practice. Frankly, we do not like the single stock risk that comes along with them. Unless one has at least dozens of stocks in their portfolio, a blow-up in just one can seriously hamper their investment program. In our view, ETF’s provide plenty of beta, without that blow-up risk.
Anyway, GM is presently testing a compelling enough price level to pique our charting interests. Near the $34 level sits no less than 5 significant potential pieces of chart support, including:
- The Broken Post-2013 Down Trendline
- The 38.2% Fibonacci Retracement of the Post-February 2016 Rally
- The 61.8% Fibonacci Retracement of the Post-Election Rally
- The 200-Day Simple Moving Average
- The 200-Week Simple Moving Average
Will this $34 level hold? We don’t have a crystal ball. Again, considering the additional risk considerations associated with single stocks, one news event, earnings mishap, etc. can hurtle a stock beyond what “should” be important support or resistance. It is much more difficult to do that with a fund, i.e., a diversified basket of stocks.
With that said, if we are forced to pick stocks, we want to pick those with the most favorable array of technical evidence in their corner. When it comes to GM, the assortment of significant potential support levels here near the $34 level is impressive. Again, we do not know if it will hold, but it would appear to be a compelling risk/reward entry point. The multiple levels should make it difficult to break down through. Plus, if it does close below that $34 level, one has a very good reason to stop themselves out on the position and reassess down the road.
The bottom line is that $34 looks like a solid risk/reward entry point for longs in GM stock.
Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.