בס״ד

The Company That Cannot Fumble (GM)

Posted on January 18, 2021

We’re going full-bore, old school today with a trade on General Motors Co. (NYSE:GM), the world’s latest entrant into the world of EV stock hype.

Now, she’s no Tesla; that’s for darn sure.  Which is to say, she don’t go blowing up with the same frequency.

Rather, GM has now made a strong move into the delivery/logistics market with her BrightDrop range of products, designed to help you get fatter while you order everything online and get shorter wait times for delivery.

‘Sustainablity’ is how they’re spinning it…

Last week, GM rolled out her “ecosystem of electric first-to-last-mile products” and her stock gapped higher like a sexy Silicon Valley start-up doll, with big volume to boot!

We’ll get to the charts shortly, but first, a quick scan of the fundamentals shows nothing too egregious –

  • P/E is 22.41,
  • P/B is 1.65, and
  • Dividend Yield is zippo.

  • Earnings for the year are down 15.9%, and
  • In the last eleven weeks, insiders were in full dump mode.  They sold a gargantuan $115 million in stock, representing 66.73% of their holdings.

So, apparently, we’re not the only ‘last-mile’ skeptics here.

Have a look now at the daily chart since the March Batflu bottom –

Technically, the big picture shows –

  1. A giant run – 271% – for a legacy value company (in blue),
  2. Including a 30% spurt in just the last two weeks
  3. That was accomplished with the aid of an extreme volume spike (in black), commonly indicative of a near-term top,
  4. An RSI overbought signal (in green – the third in three months), and
  5. A MACD indicator that looks to have peaked.

All told, not a Winnie-the-Pooh, luv ’em up picture of happiness.

Now, take a peek at the weekly –

  • Here, we see a picture-perfect GANN 90 degree decline and retrace that tops out cleanly with last week’s action (in red),
  • The move was predicated on the biggest (weekly) volume spike in better than a decade (in black),
  • Leading us to calculate Fibonacci retracement levels of 37.50 and 28.67, the first of which aligns sweetly with the gap at 38.

And it’s to that level we’re expecting the decline.

So…

A Jew and His Money recommends you consider selling the GM March 19th 60 CALL for $1.26 and buying two (2) GM March 19th 40 PUTs for $0.60 each.  Set a STOP buy on the shares at 60.  Total credit on the trade is $0.06.

Rationale: with the market puffed up like a birthday balloon waiting for a surprise prick, the turn lower is now very close.

GM will decline with the rest, but at this point appears unlikely to rise any further.  The cake’s been baked, iced, primped and is now ready to be dropped.

The short 60 CALL (that pays for the trade) is 20% OTM, but we’re still backing it up with a STOP buy at that level to avoid any losses.

For downside profitability, we’ve chosen the 40 PUT, which affords us the purchase of two options (and a net credit!) to profit from.

With a decline to our target of 37/38, we could make off very well here.

And if the G-d of Israel wills it, so will it be.

With kind regards,

Hugh L. O’Haynew

 

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