It’s been a big year for two members of “The Big Three” – General Motors (NYSE: GM) and Ford (NYSE: F) – despite mounting trade war concerns.
With growth slowing, both corporations have decided to retool and refocus. It’s a move that’s forced the carmakers to shrink their respective fleets of vehicles and trim a serious amount of corporate “fat”.
Plant shutdowns and white-collar firings quickly hit the headlines as soon as the new strategies went into effect. The once great American automobile companies had fallen from grace in the eyes of the mainstream media.
And according to a rabid press corps, President Trump was to blame.
But was he really? His tariffs had a small effect on the industry to be sure, but the bigger issue facing American car manufacturers was something else entirely:
The shifting demands of consumers. And in particular, their inability to shift with them.
Over the last few decades, drivers became less and less enthusiastic about what stateside automakers were offering. Slim, sleek sedans fell out of fashion, replaced by practical SUVs and crossovers with ample storage space.
But car companies kept on churning out unpopular vehicles, often at a great detriment to their bottom line. They were sacrificing profits for the sake of market share.
It was a strategy that used to work in the past.
Now, however, things are considerably different. Automakers are looking increasingly like utility companies with little room to grow.
So, in order to satisfy investors, they need to boost profits. Or, at the very least, make an attempt to become more efficient.
And for the better part of 2019, Ford and GM have accomplished that goal.
But over the last few weeks, both companies are beginning to run out of steam. Ford dropped significantly since mid-July and GM shares are teetering on the edge.
While that may have GM bulls nervous, the recent downturn is providing traders like us with a major opportunity to go short.
In the weekly candlestick chart above, you can see that GM clearly hit a road bump in late July. Since topping out at around $42.00 (and forming a double top), share prices have worked themselves into what could be a trend reversal.
As you may know, double (or even triple) tops often precede a reversal to the downside. In this case, though, GM might not be headed past the May/June lows if it does drop.
But any movement past the low of last week ($38.41) could signal a bearish breakout that carries prices to the lower Bollinger Band, which sits just north of $34.00.
Should GM shares trade below last week’s low by a significant amount – say, to $38.21 – it might make sense to go short.
That’s not to say this is the “end of General Motors”, but rather the start of a month-long downwards correction.
If GM continues to chop up and down between the $34.00 – $42.00 range, odds are that we’ll have a setup to go long in the near future as well. For short-term traders, GM has presented plenty of opportunities to trade the stock both directions in 2019.
This newest trade setup looks to be a continuation of that pattern.
A pattern that just keeps on producing consistent gains, month after month.
