General Motors (GM) Charges Higher on Nikola (NKLA) Deal

GM will receive an 11% stake in Nikola

General Motors Company (GM) stock gained nearly 8% Tuesday after the traditional carmaker announced that it had entered a strategic alliance with Nikola Corporation (NKLA) to engineer and build the electric-vehicle startup's highly anticipated Badger pickup truck. As part of the deal, GM will receive an 11% stake in Nikola.

Key Takeaways

  • GM has entered into a partnership with Nikola to build the electric vehicle startup's Badger pickup truck.
  • GM's stock broke above a three-month ascending triangle on heavy volume after the news, which could result in a test of the 52-week high near $39.50.
  • Nikola shares gapped above a three-month downtrend line, which may see the stock test $75.

The agreement also sees Nikola remaining responsible for Badger sales and marketing, as well as keeping the Nikola Badger brand. The Badger will be unveiled in December, with production slated to commence in the second half of 2022, per The Wall Street Journal. The partnership flags GM's commitment to an electric future, allowing it to compete on a more even footing with established players in the market like Tesla, Inc. (TSLA), which sells more electric vehicles than any other automaker.

Below, we take a closer look at GM and Nikola stock, turning to the charts to identify key trading levels.

General Motors Company (GM)

With a market value nearing $50 billion, General Motors designs, assembles, and sells cars, trucks, and auto parts globally. The Detroit-based automaker posted a second quarter loss of 50 cents per share, much narrower than the $1.72 hit analysts had expected. However, the metric declined substantially from the $1.64 profit reported in the June 2019 quarter, driven by lower demand and sales during the pandemic. Wall Street has a 12-month consensus price target on GM stock at $39.25, representing a 21% premium to Tuesday's $32.39 close. As of Sept. 9, 2020, General Motors shares are trading 10.49% lower year to date but have recovered around 6% over the past three months.

The stock broke above the upper trendline of a three-month ascending triangle on huge trading volume after news of the alliance surfaced. Moreover, the 50-day simple moving average (SMA) looks posed to cross back up through the 200-day SMA to generate a "golden cross" buy signal. Those who buy at current levels should consider booking profits around $39.50, where the shares may find selling pressure near the 52-week high. Protect capital with a stop-loss order placed under this month's low at $29.13.

An ascending triangle is created by price moves that allow for a horizontal line to be drawn along the swing highs and a rising trendline to be drawn along the swing lows. The price typically breaks out in the same direction as the trend that was in place just prior to the triangle forming.

Chart depicting the share price of General Motors Company (GM)

Nikola Corporation (NKLA)

Nikola designs and manufactures battery-electric and hydrogen-electric trucks, along with associated components and infrastructure. The company disclosed a second quarter loss of 16 cents per share, two cents per share more than the Street had forecast. Revenues of $36,000 came from installations that don't relate to the company's primary operations. Analysts have a 12-month price target on the shares pegged at $55, offering almost 10% upside potential from Tuesday's close of $50.05. Since going public on the Nasdaq in early June, Nikola stock is up 48% thanks to yesterday's steep 40% jump as of Sept. 9, 2020.

Nikola's stock price rose from just above $10 to nearly $100 between April and early June before plunging almost 70% as traders booked profits. More recently, news of the GM partnership propelled the stock above a three-month downtrend line that may get the price back in top gear. Tuesday's gap higher was accompanied by record trading volume, adding conviction to the move. Buyers who anticipate follow-through buying should think about setting a take-profit order near crucial overhead resistance at $75 while cutting losses if the shares fail to hold above intermediate support at $40.

A downtrend refers to the price action of a security that moves lower in price as it fluctuates. While the price may move intermittently higher or lower, downtrends are characterized by lower peaks and lower troughs over time.

Chart depicting the share price of Nikola Corporation (NKLA)

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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