General Motors Company (GM) shares rallied to a two-week high on Thursday after CEO Mary Barra met with President Donald Trump about the company's long-stated business plans to close four American factories and move them to other countries. The president has used Twitter on multiple occasions to criticize the largest U.S. auto manufacturer, but that hasn't stopped the company from efforts designed to maintain competitiveness and international sales momentum.
Barra described the meeting as "productive and valuable" but offered no details, so changes to GM's plans aren't expected at this time. Three reasons make it unlikely that she will have a change of heart any time in the near future. First, U.S. factory labor costs aren't competitive with other parts of the world, reducing profit margins. Second, auto sales are highly cyclical, and the threat of an economic slowdown has forced GM to cut costs. Third, executives at all public companies have a fiduciary responsibility requiring them to make decisions in their shareholders' best interests.
The automaker reported higher-than-expected profits in early August's second quarter earnings release, generating a brief uptick to a 52-week high, followed by a 15% decline into the month's end. Revenues fell 2% year over year, highlighting the urgency of building sales momentum in foreign markets that include China. The trade war has made that effort more difficult, through tariffs and deteriorating sentiment for the American brand.
GM Long-Term Chart (2010 – 2019)
The company came public in the mid-$30s in November 2010 after emerging from bankruptcy and rallied off a month-long base at $33 into the January 2011 high at $39.48. It sold off into the upper teens in 2012, posting the lowest low in the past seven years, and turned higher into 2013. That uptick exceeded the 2011 peak by less than three points before turning rail in a complex correction that carved multiple selling waves into the 2015 low at $24.62.
Choppy sideways action then took control, yielding two successful tests of 2015 support into the second half of 2016, when the stock entered a modest uptrend that accelerated after the presidential election. It broke out above the 2013 high in October 2017, posting an all-time high at $46.76 before easing into a bearish descending triangle that broke to the downside in March 2018, trapping breakout buyers.
The stock lost ground into October's two-year low at $30.56, held down by worries about escalating trade tensions, and ended the year just three points above the low. The 2019 tape has been less bullish than many blue chips, with the $40 level posing a nearly impenetrable barrier, as it has throughout GM's nine-year public history. Price action is currently stuck in a volatile trading range that could set the stage for higher prices or a retest of the 2018 low.
The monthly stochastics oscillator entered a sell cycle in April 2019 and flipped into a buy cycle in July at the panel's midpoint. Although reversals at this level often generate false signals, the indicator pattern since May 2018 has the appearance of a complex buy cycle that will post a third buy wave into the overbought level. In turn, that suggests the stock will take another run at $40 before buying interest dries up.
The black trendline across lower highs since 2018 marks the divide between bullish and bearish power, so a breakout above $42 is needed to improve the technical outlook. However, it's nearly impossible to build positions ahead of that potential event due to wide-range oscillations between buying and selling impulses. Of course, presidential tweets and trade war developments are driving these flip-flops, telling smart money to stand aside for now.
The Bottom Line
General Motors stock is trading higher after positive trade war news and CEO Mary Barra's meeting at the White House. Even so, there are much better venues for bulls to risk their 2019 capital.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.