General Motors Company (NYSE:GM) was popping up over 2% higher on Monday, lifted by the S&P 500, which was shooting up about 1.5%.
The legacy-turning-EV automaker had also developed a bullish double bottom pattern on the daily chart, which helped to push the stock upwards.
A double bottom pattern is a reversal indicator that shows a stock has dropped to a key support level, rebounded, back tested the level as support, and is likely to rebound again. It is possible the stock may once again retest the level as support, creating a triple bottom or even quadruple bottom pattern.
The formation is always identified after a security has dropped in price and is at the bottom of a downtrend, whereas a bearish double top pattern is always found in an uptrend. A spike in volume confirms the double bottom pattern was recognized, and subsequent increasing volume may indicate the stock will reverse into an uptrend.
- Aggressive bullish traders may choose to take a position when the stock’s volume spikes after the second retest of the support level. Conservative bullish traders may wait to take a position when the stock’s share price has surpassed the level of the initial rebound (the high before the second bounce from the support level).
- Bearish traders may choose to open a short position if the stock rejects at the level of the first rebound, or if the stock falls beneath the key support level where the double bottom pattern was created.
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The General Motors Chart: GM printed a double bottom pattern on May 12 and Friday near the $34.58 level. On Monday, the stock was attempting to react bullishly to the formation but rejecting at the eight-day exponential moving average.
- GM has been trading in a consistent downtrend since May 4, when the stock topped out at $41.24. The downtrend is likely to continue unless GM is able to soar up to print a higher high above the most recent lower high of $38.55 or if the stock prints a higher low above the double bottom pattern on the next retracement.
- Bullish traders looking to scalp GM for its run to the next lower high will want to see the stock close the trading day near its high-of-day price, which will cause GM to print a hammer candlestick and indicate higher prices are likely to come on Tuesday. Bearish traders will want to see GM continue to reject the eight-day EMA, which could indicate Monday’s high-of-day is the next lower high within the downtrend.
- GM has resistance above at $38.03 and $40.04 and support below at $35.38 and the double bottom level.
