Sunday, February 2, 2014

Tecnical Analysis of General Motors Stock


Forex, futures, stock, and options trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur.  I am applying a method that I use for Futures for the analysis of stocks.

General Motors

Symbol: GM

Very interesting break out of the bottom of the channel that GM has been in for months. It looks like the markets are not sure what to do with the stock, even on the very day it broke out the candle ended up being a Doji (an indecision candle). I see too much indecision for me to risk much money on, but it doesn't look to bad for a retest of the highs. The problem is that it doesn't look too bad for a short entry either. Lets take a look at the chart and do some analysis to see if we can't figure this out.

A:  First, we have a channel that the stock has been in for months. Pretty strong channel, and this is the first time the channel has been broken to the downside.
B: We have a horizontal support line that has functioned as resistance and support in the past.
C:  Strong, almost unsustainable, move down.
D: Here is a pretty strong Bearish signal. We have a new high that broke out of the top of the channel, and then a retest of that high.

1.) Doji that broke out the bottom of the channel.
2.) What looks like a retest of the bottom of the channel line, but I see something else.  If you do a little candlestick math and add candle number one with this candle then I see a hammer (bullish candle). Basically, it's a failed breakout of the of the bottom of the channel.
3.) Here we have a very strong gap down, and then It's stopped dead in it's track and it bonces back up.  I could consider this the first break of the bottom of the channel.
4.) This is the retest of the bottom of the channel.
5.) We have another move that's lower, but it is stopped dead at the support line.

The Analysis
Here are some of the interesting things that I see.  Each time the stock attempted to move lower, Candles 1,3, and 5 it was stopped.  The interesting thing is that on candles 3 and 5 the stock did in fact move a few ticks lower then the attempt before it.  This should have run a few stops, but instead the selling was absorbed.  This is a very strong move sort term move down, but the overall trend of the market has been up for months.

If it breaks lower and then reverses I would see it as a sort trap, and I would go long immediately.  It could also be part of a measured move, but we still don't have any sort of pullback. Overall, I think this is a good chance to go long some GM stock.  I would set a stop below of candle number 5 and see if you couldn't catch a ride back to the EMA.  Options might be a good bet for this type of trade.

My Personal Trading Problem
The problem I have with this stock is with candle number 5.  In order to get a entry that would adhere to my trading rules, I would have to wait for a bar that goes above the bar before it.  Not a big deal, but then I would have to place my stop below bar number 5.  This means that I would need to have a stop that is a bit outside of my comfort zone if I was to take a large position in the stock.  Given how much indecision their has been on this stock, I recommend exercising caution!

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