Market Overview

Good & Bad News From General Motors

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Companies attempt to balance the fundamental news they reveal to Wall Street, often balancing the good with the bad and vice-versa.

General Motors’ (NYSE: GM) disclosures over the last few days are a great example of this taking place.

Start with GM’s announcement Tuesday morning that Global Sales were up 4.5 percent in 2013. Later in the day, the Board of Directors declared a quarterly dividend 0.30 cents per share on its common stock. The dividend is payable March 28, 2014 to all common shareholders of record as of March 18, 2014.

This action will now attract value-oriented investors on top of the growth-oriented group that have already wagered on the companies revival. Along these lines, value funds (who will only invest in stocks that pay dividends) may migrate into the issue.

The combination of these announcements propelled the issue over one point in post market trading Tuesday, above the 41.00 level and within shouting distance of its all high (41.85). The issue continued to hover in the 41.00 level for the remainder of the post-market session and into premarket action Wednesday morning.

Then came the bad news Wednesday morning.

The company anticipates only a modest share increase in the United States and Europe this year. Also, despite increasing profit in 2014, significant forex challenges will prevent the company from increasing profitability.

This announcement had an immediate negative impact on the share price and within thirty minutes, GM tumbled over a point and was back under $40. While the Street was attempting to balance the news, the issue consolidated and traded around 39.50 in heavy premarket volume.

GM continued to retreat off the opening bell as traders caught long buying off the good news had to exit their positions. All this occurring while opportunistic short sellers punished the herd, which was banking on a breakout to new all-time highs.

At this time, the selling pressure has abated as GM has begun to rebound from its morning low (38.96) and is now trading at 39.30. Interestingly, the current low coincides with the January 3 low (39.00).

With the company due to release earnings on February 6, the issue may chop around in a 39-41 trading range until that date. At that time, analysts will chime in with forecasts for the issue in 2014. In turn, a breakout to new all-time highs will occur or a technical breakdown will take it to the next major support level at 37.50.

Finally, investors should be aware of two positive catalysts for the issue. First of all, now that the US government has exited the issue, the threat of dumping shares into the open market has been eliminated.

More importantly, well respected hedge fund manager Kyle Bass of Hayman Capital views GM shares as undervalued and states GM offers investors a compelling risk reward situation.

This story was written by Joel Elconin.

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