Why General Motors Stock Surged Today And How To Play The Break

General Motors Company GM gapped down slightly lower to begin Monday’s trading session but bulls came in and bought the dip, causing the stock to shoot up 6.6% higher at one point.

Traders and investors took a renewed interest in GM after the company announced it had delivered over 613,000 vehicles in China during the first quarter. The deliveries number prompted Exane BNP Paribas to initiate coverage on the stock with an Outperform rating.

The gap down open, paired with the rise higher, confirmed the stock has reversed course into an uptrend pattern on the daily chart.

An uptrend occurs when a stock consistently makes a series of higher highs and higher lows on the chart.

The higher highs indicate the bulls are in control while the intermittent higher lows indicate consolidation periods. Traders can use moving averages to help identify an uptrend with rising lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term uptrend and rising longer-term moving averages (such as the 200-day simple moving average) indicating a long-term uptrend.

A stock often signals when the higher high is in by printing a reversal candlestick such as a doji, bearish engulfing or hanging man candlestick. Likewise, the higher low could be signaled when a doji, morning star or hammer candlestick is printed. Moreover, the higher highs and higher lows often take place at resistance and support levels.

In an uptrend the "trend is your friend" until it’s not and in an uptrend there are ways for both bullish and bearish traders to participate in the stock:

• Bullish traders who are already holding a position in a stock can feel confident the uptrend will continue unless the stock makes a lower low. Traders looking to take a position in a stock trading in an uptrend can usually find the safest entry on the higher low.
• Bearish traders can enter the trade on the higher high and exit on the pullback. These traders can also enter when the uptrend breaks and the stock makes a lower low indicating a reversal into a downtrend may be in the cards.

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The General Motors Chart: General Motors reversed into an uptrend on April 7 and the 37.61 level. The most recent higher low was printed on Monday at $38.76 and the most recent confirmed high was printed at the $40.05 mark the following day.

On Monday, GM formed a higher high above that level but it will be unknown if the stock has topped out at its high-of-day until the next higher low is printed.

• Technical traders may have determined a trend change was on the way because on April 7, GM’s relative strength index (RSI) plunged to the 25% level. When a stock’s RSI reaches or falls below the 30% level it becomes oversold, which can be a buy signal for technical traders.
• The rise on Monday caused GM to break up bullishly from a falling channel the stock had been trading in since March 29. If GM is able to close the trading day above the upper descending trendline of the pattern, a larger reversal to the upside may be on the way.
• GM is trading above the eight-day exponential moving average (EMA), but on Monday the stock tested the 21-day EMA as resistance and wicked down from the area. Bullish traders will want to see GM regain the 21-day as support over the coming days and hold above the area, which will eventually cause the eight-day EMA to cross above it and would be bullish.
• The stock has resistance above at $42.89 and $44.87 and support below at $40.04 and $38.03.

See Also: General Motors Co. To Conduct Tests Of EVs As Home Power Backup Systems

Photo: Courtesy of Thomas Hawk on Flickr