Weekly Market Outlook
For Institutional Investors Only
April 2, 2019
Glenn Williams Jr; CMT
215.280.8308
Glenn Williams Jr LLC
glenn@glennwilliamsjr.com
Trade idea (System 3-Moving average crossover: description on page 2*, chart on page 4):
· General Motors (GM-$37.76). Potential short candidate
· I think there may be an opportunity to go short GM shares, given a combination of technical and fundamental factors
· I’ll state up front that this showed up on a screen that I run that searches out moving average crossovers, specifically the 10 period MA crossing below the 100 period MA.
· My market regime filter does show that I would generally be looking for long ideas. However, I’m of the opinion that a GM short is worth taking a look at.
· Also, I think this trade may take a few weeks to set up, as I don’t want to recommend getting long a name while the general market trend is moving higher.
· On a fundamental basis, GM’s sales are relatively flat, with a 1% sequential move higher in 2018. The 5 yr CAGR specific to revenue is negative 1%
· GM’s balance sheet has a 71% debt to capital ratio, although the firm is admittedly generating sufficient interest coverage in my view (EBITDA/Int ratio exceeds 27x).
· Short interest shows days to cover at just 2.0, which in my view doesn’t put a lot of upward pressure on the stock should investors need to cover any short positions.
· I took a look to see if there has been any recent insider activity, and note the sale of 8,499 shares of GM stock (at $40 per share), by Chief Accounting Officer, and Controller, Christopher Hatto (on 3/4/19…Form 4 displayed on page 5). The sale represented 46% of Hatto’s holdings. While this could have occurred for any number of reasons, I still do not view it as bullish for the stock.
· From a technical vantage point, GM hit lows in Oct of 2018 around the $30 per share mark, before moving to $40.14 on Feb 25th 2019.
· Since that time, we’ve seen a retracement to $36.44 on March 22nd 2019, followed by a move higher to its current level of $37.76.
· What I’ve noticed of late is that momentum began to slow on GM’s prior move higher, signaling a potential slowing in its upward trajectory.
· From a trading system vantage point, GM shares entered into a “sell zone” whereby the price is between the 10 and 100 day MA’s while the 10 day MA is below the 100 day.
I do have a couple of areas of concern however, one being that I think we may be around an area of support, given the anchored volume weighted average price. Looking at AVWAP from the 2Q18 and 3Q18 earnings periods (7/25/2018 and 10/31/201), shows trade prices of $35.93 and $36.88