U.S. automakers are struggling to hold key support levels after a terrible start to 2017, fueled by declining sales in key venues as well as limp metrics compared to prior years. Uncertainty about NAFTA and trade policy has added to selling pressure, with investors worried that labor costs would rise significantly if foreign production facilities are curtailed, lowering profit margins and competitiveness compared to European and Asian rivals.
General Motors, Co. (GM) has held up better than its competitor Ford Motor, Co. (F) in the recent malaise, but that’s not a buy recommendation, given aggressive selling pressure and bearish technical patterns that could signal long-term cyclical downturns. Even so, both stocks should offer buying and selling opportunities for the fast-fingered crowd because several recovery attempts are likely before large-scale declines start.
As a side note, upstart Tesla, Inc. (TSLA) doesn’t fit well into this comparative analysis because it’s focused on a small luxury segment while its battery and solar technologies have the potential to attract revenue in a wide range of industries. Even so, it’s shocking the company now holds a higher market cap than these American icons, reflecting speculative fervor that may never come to fruition.
General Motors stock came alive in its current incarnation in December 2010 after the U.S. government completed a recovery plan following the company’s June 2009 bankruptcy. The new shares opened in the mid-30s, attracting buying interest that generated a quick rally to $39.48. It topped out less than two months after the initial public offering and sold off in a vicious downtrend that continued into the end of 2011, dropping the stock to $19.00.
A bounce into February 2012 got sold, triggering a July test that posted an all-time low at $18.72 ahead of an enthusiastic bounce that completed a double bottom reversal. The subsequent uptrend caught fire in 2013, reaching an all-time high at $41.85 in December. It then entered a volatile corrective pattern that took the shape of an expanding wedge, wiping out shareholders in a series of steep downdrafts that finally ended after the August 2015 mini flash crash.
The stock returned to the trendline of lower highs in December 2015 and sold off but held a series of higher lows into a November 2016 rally that generated a 3-year breakout. However, momentum buying interest failed to develop in the first quarter of 2017, yielding a gravity wave that’s been testing new support for nearly two months. The deeply oversold weekly Stochastics suggests a final bounce that forestalls a breakdown into the lower blue line in the upper-30s.
Ford Motor fell from grace after hitting an all-time high at 38.83 in 1999, descending in a 10-year downtrend that reached a 23-year low at 1.01 at the end of last decade’s economic collapse. It recovered at a rapid pace into 2011, completing a 100% round trip into the 2004 high at 17.34. That signaled the high water mark so far in this economic cycle, ahead of 2013, 2014 and 2015 tests at resistance that attracted aggressive selling pressure.
On Balance Volume (OBV) peaked in 2013 and entered a shallow distribution wave that continued into the end of 2015 when the bottom dropped out in a climactic plunge signaling wholesale institutional abandonment. It continued to post lower lows throughout 2016 despite the washout, with the November election failing to build steady buying interest. It gave up those gains in a March decline that dropped the stock to a 52-week low and test of August 2015 support (red line), with a breakdown signaling a potential bear market decline into single digits.
The Bottom Line
General Motors and Ford Motor have sold off to deep support levels that, if broken, will signal the start of secular downtrends. However, oversold technical readings predict at least one final recovery attempt before selling pressure escalates.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>