General Motors Company (NYSE:GM) was rising Tuesday after breaking up from a descending trendline that Benzinga called out April 26.
A descending trendline acts as a resistance level and indicates there are more sellers than buyers even though the price continues to fall.
In order for a trendline to be considered valid, the stock or crypto must touch the line on at least three occasions. After that, the more times the trendline is touched, the weaker it becomes.
- Bullish traders can watch for a stock or crypto to break up from the descending trendline and, if the break occurson high volume, it can indicate the downtrend is over and a rally may be on the horizon. It's possible the stock or crypto may fall down to back-test the descending trendline as support before heading higher again.
- For bearish traders, “the trend is your friend” (until it’s not) and a touch and rejection of the descending trendline can offer a good short entry. A bearish trader would stop out of this type of trade if the stock or crypto broke above the trendline.
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The General Motors Chart: The descending trendline on GM’s chart had been holding the stock in a downtrend since Jan. 4, when the stock topped out at a new all-time high of $67.21. Between that date and Monday, GM lost over 44% of its value after falling to a new 52-week low of $37.31.
- The break up from the trendline was likely caused by a bullish double bottom pattern that GM printed at its 52-week low on April 28 and Monday. On Tuesday, the pattern was recognized and GM gapped up to start the day and continued to run higher intraday.
- If GM closes the trading session near its high-of-day price, the stock will print a bullish kicker candlestick, which could indicate higher prices will come again on Wednesday. The second most likely scenario is that GM prints an inside bar pattern in consolidation, which would lean bullish for continuation on Thursday.
- GM has resistance above at $42.89 and $44.87 and support below at $40.04 and $38.03.
GM CEO Mary Barra. Benzinga file photo by Dustin Blitchok.
