GM Bankruptcy? Stocks Lose 3%

Monday, March 30, 2009

Fundamental Take:
The Dow dropped 254 points after General Motors' CEO, Rick Wagoner, was forced to resign and the Obama administration rejected requests for more government aid. GM's president and COO, Fritz Henderson, will take control and now has 60 days to develop a viable strategy in order to receive more bailout funding for the company. The administration has determined that Chrysler is not viable on its own and has 30 days to strike a deal with Fiat, an Italian automobile manufacturer. GM and Chrysler have received $17.4 billion from the government already but they now must provide concrete business plans or be forced into bankruptcy. While President Obama has vowed not to allow the auto sector to vanish, he does believe bankruptcy proceedings may be the best path to turning around the troubled auto giants. Chapter 11 Reorganization may be the only way to renegotiate the current labor union contracts that lack competitiveness with foreign rivals. The possible bankruptcy of these two companies rattled investors throughout the day as the auto sector plays a major role in American manufacturing.

Technical Take:
Today's fall was a bit more than optimist bulls would like to see but it is still quite minor considering the overall picture. The market gapped lower about 200 points on the open and trended lower throughout the day hitting a low of negative 339 late in the afternoon. A late-day 85-point bounce pared some of the losses for the day. This rally still remains over 1,000 points off the low closing at 7,522 today. Stocks rallied to the 8,000 resistance level hitting a closing high of 7,924 before finding significant selling. This level was previous support in the 4-month base from October's low to the February breakdown so it makes sense that it would act as resistance. Technicians will measure this pull-in to continue determining the buying strength in stocks expecting stocks to hold above 7,000.


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