What Is The Markets Opinion On GM And Mary Barra's Testimony?
While Mary Barra was grilled by Congress regarding the handling of the General Motors (NYSE: GM) recall involving defections in the ignition switch in some compact cars, the stock continued to trade in a narrow range.
In fact, GM had nearly identical ranges on Tuesday and Wednesday throughout her testimony ($34.32-$35.14), ending the session at $34.88. In Thursday's trading, GM is once again testing the upper-end of this range, reaching $35.11, before falling back to $35.00.
It's as if the market could care less about her testimony. Of course, there have been a few spikes up and down during her testimony that may be attributed to her comments, but overall Barra has held her own and so has GM's share price.
In fact, GM has traded in a well defined trading after its swoon to $33.57 on March 15, a few days after first revealing the details of the recall. Interestingly, this level coincides with its August 28 low ($33.50).
Since bottoming at the level GM rebounded to the $35.25 area. Shares only exceeded that level on a huge buy imbalance induced by the March 21 Quadruple Witch Expiration that propelled GM to $35.50 shortly after its open. It should be noted GM quickly faded from the level and ended the day at $35.01.
GM did manage a few attempts to remain in the $35 handle, but was rebuffed each time. After each failed attempt GM declined to the lower $34.00's, only to find willing buyers just above and below that area.
All in all GM has traded in a less than two point trading range ($33.57-$35.50) for the last 17 trading sessions -- a majority of the days ending with share price slightly above and below the $34.50 level, which happens to be smack dab in the middle of the range.
Consolidation periods with this long of a duration usually provide investors with a good trading opportunity, since GM cannot trade in this narrow of a range forever.
The bulls are banking on a quick resolution to the recall debacle and for GM to clear the $35.50 level and migrate towards the major resistance at the $38.00 level from early March.
UBS has reported the automobile forecaster IHS Automotive has not detected a change in GM production schedules following the news of the recall. Based on prior recalls from Toyota and Ford, the analyst does not expect GM to suffer in the long-term.
Although the new GM is not legally responsible for the old GM, the company may choose to compensate the families that lost loved ones do to the the faulty ignition switch. This action would be a good public relations move for the company and the monies paid out to the families may be offset by GM improving its public image.
Bears will be leaning on $35.50 as a possible exit point for their short positions. If shorting at the $35.00 level, the risk is clearly defined in the trade and a move to the lows of the current move ($33.57) yields a solid 3-to-1 risk/reward ratio.
Additional recalls or a monster judgment against GM would certainly exert more downside pressure on the issue. In the event $33.57 is breached, GM may not find any support until its June 24 low ($31.13).
Whatever and whenever the resolution to the recall is announced, GM is going to have a big move. Investors may want to base their trading strategy on the technical levels the issue has provided over the last 17 trading sessions.
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