Analysis: The Psychological Importance Of General Motors

DETROIT (WWJ) –  Last week, both General Motors and Ford stocks sputtered on Wall Street as their European operations continue to be a challenge. But have they lost their economic clout?

While some say: “As GM goes, so goes the nation,” Economist Robert McHugh, from Mainline Investors, said it may not be as simple as that.

Talking to WWJ’s Jayne Bower, McHugh said today’s economy is so information-driven that it’s difficult to say whether the country always follows GM’s lead – but the importance of GM should not be underestimated.

“Well certainly GM, if nothing else, has a major psychological affect on the economy,” said McHugh.  “And they still produce an awful lot of cars that we really need to drive …”

As for McHugh’s analysis on GM and Ford stock, which hit new lows last week:

“I see them very, very oversold on both a weekly and daily basis,” said McHugh.  “I’m looking for a rally from here.  I think that they are close to a bottom.”

McHugh said GM and Ford have some wiggle-room for the upside, but they’re not the only stocks on shaky ground; a scenario he calls the ‘Jaws of Death.’

“I think Ford and GM both have room to rally in the short run,” said McHugh.  “If they don’t, it means this ‘Jaws of Death’ pattern is topping sooner rather than later, and it’s anxious to get started on the next leg down.”

McHugh said that while technical analysis of GM and Ford stock indicate that both may rally in the short term, challenging times still lie ahead for the auto companies. “We need GM.  We need them to produce vehicles for our military.  They employ an awful lot of people…” said McHugh.  “We’ve got to keep … GM and Ford running.“

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