Credit: Shutterstock photoWhat's Happening
Detroit automaker General Motors ( GM ) will likely react to March's auto sales report which will be released on April 3. GM shares have been in a sideways pattern for the last three months, and the stock is currently up a modest 0.7% on the year.
Technical Analysis
GM was recently trading at $35.39, down $3.16 from its 12-month high and $8.05 above its 12-month low. Overall technical indicators for GM are neutral and the stock has been in a sideways pattern. The stock has recent support above $33.95, and recent resistance below $37.75. Of the 12 analysts who cover the stock, four rate it a "strong buy", and eight rate it a "hold". The stock receives S&P Capital IQ's 5 STARS "Strong Buy" ranking.
Analyst's Thoughts
General Motors has been in a sideways trend for the better part of three months, as Wall Street is unsure of how the sector will hold up in the face of rising interest rates. With the Federal Reserve lifting rates twice since December, and expected to announce two more increases through the course of the year, there is a fear that auto sales will start to suffer. The good news is that rates will remain very low on an historic basis, and experts believe that slightly higher rates will not have a material impact on the market for the time being. Last year was a record year for automakers, and some analysts believe 2017 will be even stronger, before the market starts to cool in 2018. The March auto sales report will give Wall Street a clearer picture on the current health of the sector, and a strong report could help GM break out of its current trend.
Stock Only Trade
If you're looking to establish a long stock position in GM, consider buying the stock under $35.50. Sell if it falls below $31.95 or take profits if it gets to $40.75.Bullish Trade
If you want a bullish hedged trade on the stock, consider a June 27/32 bull-put credit spread for a 40-cent credit. That's a potential 8.7% return (41.2% annualized*) and the stock would have to fall 8.5% to cause a problem.
Bearish Trade
If you want to take a bearish stance on the stock at this time, consider a June 39/44 bear-call credit spread for a $0.30 credit. That's a potential 6.4% return (30.3% annualized*) and the stock would have to rise 11.0% to cause a problem.
Covered Call Trade
If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a June $35.00 covered call. Buy GM shares (typically 100 shares, scale as appropriate), while selling June $35.00 call for a debit of $33.65 per share. The trade has a target assigned return of 3.9%, and a target annualized return of 18.7% (for comparison purposes only).The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Originally published on InvestorsObserver.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
