A Look At General Motors

04/01/15 03:55:09 PM

by Koos van der Merwe

Warren Buffett buys shares in a company when he has trust in the CEO and management.

Security: GM
Position: Accumulate

Mary T. Barra was appointed CEO of General Motors (GM) on January 14, 2014. She was named to the Time 100, Forbes magazine labeled her as one of the "World's 100 Most Powerful Women," and Fortune magazine placed her second on its list of "50 Most Powerful Women in Business." In the fourth quarter of 2014, the company's pre-tax profit surged 27% to $2.41 billion, far better than analysts had expected. At the 2015 Detroit auto show, GM unveiled a new $30,000 Bolt electric concept car.

During her tenure as CEO, she has received praise from Warren Buffett, possibly an indication that he may be buying shares of GM. However, on March 19, 2015 the Associated Press announced that Mary Barra and 34 other current and former GM employees will be questioned over the defective ignition switches, with her deposition scheduled for October 8, 2015. She told Congress that she only learned about the defective switches in December 2013. Is this an indication that she could resign from her position, or will she clean up the negative image of the company her predecessors created? Is GM a share that should be bought and held because of Barra's leadership and her efforts in cleaning up a mess created by her predecessors; a mess that led to the bankruptcy and delisting of the company on June 2nd 2009? The company was relisted in November 2010.

Figure 1. Weekly Chart Of General Motors (GM). The Elliott wave count shows that the stock price is now in a Wave iii of Wave 3 of WAVE V. The relative strength index (RSI) is still rising.

Graphic provided by: AdvancedGET.

The weekly chart of GM in Figure 1 shows how the share price was relisted in November 2010, rose to $39.55, and then fell to $18.97 by December 2011. The Elliott wave count shows that the share price has risen since then and is now in a Wave iii of Wave 3 of WAVE V. The relative strength index (RSI) is still rising, and has not given a sell signal. Is GM a stock that should be purchased at the present price and held for the long-term in spite of the possibility that Mary Barra could be forced to resign her position?

Figure 2. Daily Chart Of GM. The stock price could be completing a Wave ii of Wave 2 of WAVE III. The RSI is suggesting further downside.

Graphic provided by: AdvancedGET.

The chart in Figure 2 is a daily chart showing an Elliott wave count and a JM internal band. The Elliott wave count is suggesting that the share price could be completing a Wave ii of Wave 2 of WAVE III. The RSI is suggesting further downside. Should this occur, the Elliott wave count could change. You must never forget that an Elliott wave count is purely a signpost in the wilderness, and the count can change at the next signpost. Note the falling volume as the share price fell (a sign of weakness), suggesting that the share price could soon start rising. Note the JM internal band buy signal given on February 4, 2015. A JM internal band is a 15-period simple moving average offset by 2% positive and 2% negative. A closing price above the upper band suggests a buy, and below the lower band a sell. Although the share price is currently testing the lower JM internal band, the closing price of the share has not fallen below the lower band, suggesting a sell signal. Although the RSI is trending down, and has not reached the 32 level to give a buy signal, the possibility of a rise in the share price could occur. Looking back at the RSI, you can see that a move below followed by a rise above the 41 horizontal line gave a buy signal.

Will Mary Barra be forced to resign after she presents her testimony in October 2015, or will her statement that she knew nothing about the faulty ignition switches be accepted? The Elliott wave count on the chart suggests that the share price could soon start rising even though a JM internal band sell signal is given on falling volume. Yes, I would be a buyer of GM shares on any correction and once the RSI gives a buy signal, Warren Buffett style, I would put my trust in the company under Barra's leadership.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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A Look At General Motors

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