How To Trade General Motors' Stock Heading Into Q1 Earnings: Charting The Path Ahead

General Motors Company GM is set to print its first-quarter financial results after the market close. The heavily beaten-down stock was trading 4% lower heading into the event and remains down over 40% from the Jan. 5 all-time high of $67.21.

When the legacy-turning-electric vehicle manufacturer printed its fourth-quarter results on Feb. 1, the stock was trading in a steep downtrend. The earnings release accelerated the move and although GM gapped up slightly the next day, the stock continued to plunge over the trading days that followed.

For the fourth quarter, GM reported an adjusted EPS of $1.35 on revenue of $33.58 billion. GM topped the consensus estimate of $1.19 per share but slightly missed the revenues estimate of $34.01 billion.

Ahead of the impending earnings print, Deutsche Bank maintained a Buy rating on the stock but lowered the price target to $56. If GM was able to reach even the lowered target price, it would represent a 46% increase from the current share price.

From a technical analysis perspective, GM’s stock looks to be heading lower, and if the stock doesn’t receive a bullish reaction to its earnings, GM could fall to a knew 52-week low on Wednesday. It should be noted that holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat. Options traders particularly, those who are holding close dated calls or puts, take on extra risk because the intuitions writing the options increase premiums to account for implied volatility.

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The GM Chart: GM has been trading in a fairly consistent downtrend, with the most recent high printed at $43.24 on April 20 and the most recent lower low formed on April 7 at the 37.60 level. If the stock closes the trading day near its low-of-day, it will print a bearish Marubozu candlestick, which could indicate GM will trade lower again on Wednesday, which would another lower low likely.

• If GM falls further on Wednesday, a bounce will likely follow later in the week because the stock’s relative strength index (RSI) is nearing oversold territory, measuring in at about the 35% level. When a stock’s RSI drops to near the 30% level it can be a buy signal for technical traders.
• If GM receives a positive reaction to its earnings print and the stock trades higher on Wednesday, it will have broken up bullishly from a descending trendline that has been holding GM down since Jan. 4. A break up from a descending trendline can indicate a large reversal to the upside is in the cards.
• GM has resistance above at $40.04 and $42.89 and support below at $38.03 and $35.38.

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