Today, markets were jolted by news from mainstream media regarding Trump's proposed 25% tariff on imports from Canada and Mexico, which is seen as particularly harmful to automakers. This news has caused GM stock prices to drop over 8%, from $60 to $55. Having covered General Motors technically over the past several years, SIA is well-positioned to provide insight into this matter. To contextualize this situation, we first need to look back into the archives of the Daily Stock Reports, which users can easily access by going to the Asset Allocation - Daily Stock Report tab on the site and using the search functionality within the newsletters. Type in the word "GENERAL," and you will quickly find all the reports compiled by SIA for this name. The most recent report was completed on June 11, 2024 (see bubble on the first candlestick chart). The main takeaway from this June DSR report was the recent entry of General Motors back into the top (favored zone) of the SIA S&P 100 Index Report. It was noted in the report that shares of GM had been buried deep in the Unfavored (red) zone of this report for many years, so this data alone is significant. The matrix position of GM within this report is also shown in the first (now refreshed) chart, where you can see that GM became a favored name within the report, except for a brief retreat of relative performance during the Japanese flash crash in late summer. But like a beach ball held underwater, shares began to rise again in the lead-up to the US election and are currently in position #14 of the SIA S&P 100 Index Report. Performance of GM shares, as of yesterday's close, shows a gain of 15.61% for the month, 24.26% for the quarter, and an impressive 68.96% YTD, compared to the iShares S&P 100 ETF benchmark returns of 2.34%, 6.31%, and 29.72% over the same period. So, even with today's setback, shares of GM are outperforming the major indexes. It is important to understand this because it highlights the difference between gut-based and rules-based investing. The fact is that shares of GM have had an impressive run and are now encountering long-term resistance at $60. They most likely need a well-deserved rest, but the media seems convinced that GM’s application to join the Formula 1 World Championship is the catalyst for a correction. Obi-Wan Kenobi in Star Wars would say, "These are not the droids you are looking for. Move along!"
Turning back to the June 11th DSR report, we have re-attached the old candlestick chart, scaled weekly, to illustrate the breakout scenario highlighted with a green circle near $46. Resistance was set at $62, the top of the prior high from 2021, for this multi-year breakout. Compare this chart to the now updated second chart, where shares motored higher all the way up to the $60 level, where they indeed encountered resistance from the upper-level highs that materialized in January of 2021 and again in January of 2022. Savvy investment advisors are now at resistance, have a strong rate of return on their GM shares, and are faced with long-term sellers eager to offload GM shares that they purchased 4 years ago, which have had little to no return. Before shares of GM can move beyond this level, they will have to digest this significant zone before moving to loftier levels. In the meantime, shares of GM remain highly ranked in the SIA reports, although the Automotive Sector is still Unfavored. Additionally, GM shares carry a perfect SMAX score of 10 out of 10, which further supports their outperformance characteristics against other asset classes, as well as the other 100 names within the SIA S&P 100 Index Report. Independent thinking can be challenging, especially when bombarded with data from various sources, but with the help of technology to distill large data sets, we can see the forest for the trees. If you are ready to take the next step toward rules-based investing and move away from gut-based investing, please give us a call. We are thrilled to work with advisors who are looking for the edge that SIA's technology can provide.
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