Cramer seeks acceleration in car stock
(Click for video linked to a searchable transcript of this Mad Money segment)
Looking for some portfolio acceleration? Jim Cramer checks the charts to see if GM could send gains into overdrive.
Of course, the "Mad Money" host is a fundamental investor; he believes things like future earnings, strong leadership, quality products and dominant market position are among the best catalysts to drive a stock higher.
And looking at fundamentals, he thinks GM sets up nicely. "I like GM's fundamentals," Cramer noted.
However, Cramer also likes to consult the charts to both confirm his thesis and determine the best levels at which to establish a new position.
Technical analysis provided by Dan Nathan of RiskReversal.com says there are some key levels that GM bulls should be watching very closely right now.
Looking at the daily chart of GM, Nathan says it's important to note that the stock advanced methodically, with GM really breaking out on high volume in November and December.
What matters here is that in 2014 the uptrend broke down.
Therefore, according to Nathan, for to rally in any meaningful ways, the stock needs to hold between $34 and $36, an area of recent consolidation.
If it does, Nathan says watch and see if GM can trade above $38.45, GM's 50-day moving average. If it can Nathan thinks GM could rally up to $42, a previous all-time high.
However, the charts aren't entirely bullish. Nathan says that if GM can't hold $34 then he can see GM testing its June lows around $31.
What to do?
According to Nathan, before you make a buy decision, check the bond market.
Huh?
Nathan points out to Cramer that there's a very strong correlation between the performance of GM's stock and the yield on the 10-year. He says that when yield drops to 2.5% or below, that's been very negative for GM, and when it rallies closer to 3%, that's been very positive.
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Turning attention back to the fundamentals, Cramer sees more tailwinds than headwinds.
"From the February sales numbers released earlier in the week, we know that GM's market share in trucks increased by 2% over the previous month—that's tremendous," he said.
"More important, we now know the company is being disciplined about offering sales incentives, a big positive because those incentives can really eat into the margins. Also, the federal government sold its remaining stake in the company back in December, allowing to reward shareholders with a buyback and dividend yield of 3.25%. Oh, and did I mention the stock is cheap, selling for less than 10 times earnings."
Because of the strong fundamentals and relatively bullish chart patterns, Jim Cramer thinks the risk is worth the reward.
"Downside should be limited, especially with that bountiful 3.25% yield, and the upside could be impressive as the stock plays catch-up to the rest of the market," Cramer said. But keep an eye on the 10-year. The bond market could provide the final 'tell.'
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