GM Trade Idea Follow Up

I featured GM Late February , this is a trade idea I really like. First I think GM is a dog anyway, second the fact the government was involved in it is a second strike. However, most importantly, the IPO of the newly issued GM shares was snapped up by a bunch of hedge funds and GM is trading below IPO pricing at $33. You have to understand how Wall Street works. There's not a lot of incentive to try to outperform other funds as that would require risk taking, but if you can keep up with the crowd, then you're ok. This creates a "herd" mentality among multi million and multi billion dollar salaried fund managers. They all buy the same things so they don't under perform and stick out like a sore thumb and get hit with redemptions. Even if they believe GM is a great deal and they'll come roaring back, when that prospectus goes out, you don't want to be the last idiot holding GM at a loss. So I expect to see funds continue to sell GM as they clearly have been doing and at a loss; that was the premise of the original trade.

Can GM trade at $4? Sure! That's not a prediction, it's just a possibility.

Here's the current GM charts which are limited because of the limited amount of time since the IPO was released (I have fewer data points to compare).

GM trading below the IPO of $33-note the volume in the red square-that's likely distribution, it doesn't happen on huge volume, but there is a noticeable uptick in volume if you pay attention.

The $32 area seems to have been capitulation event, but someone bought there for the shares sold, thus it's a strong resistance point as well. It's likely we'll see a move to that area and a failure around there. It is an important level as it provided support and we saw a gap right through it on heavy volume.

I'd consider this a "longer term trade/investment" and have a stop up around $33.50 or so. I do believe that "if" they can pull it off, the hedgies will try to get out of this at a minimal loss, it's the very same human emotion that rules retail traders and creates support and resistance, the idea, "If I can just sell close to where I bought". So I may consider picking up 10% or so of my intended position in the area, maybe fill it out to 50% around $32-ish and then add the rest on a break to a new low. Then I'd set my trend channel and let it do it's thing. Locals bought this thinking that retail would follow, retail was more interested in the high P/E momentum stocks then GM. So the locals will correct that mistake ASAP and GM will suffer for it.