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HEAD & SHOULDERS


Goodyear Tire On the Road Again?

12/01/03 12:10:41 PM
by Matt Blackman

It's been a tough four years for the tire company but the chart is showing signs that the worst may be over.

Security:   GT
Position:   N/A

In May 1999, Goodyear Tire (GT) traded as high as $66.00. It hit an all time high of $75.69 the year before. Since then the company has had a bumpy off-road ride, most of it downhill. It hit a low of $3.35 on February 6, 2003 and has since been struggling to make a comeback. It was trading at $6.75 on the eve of Thanksgiving.

From a fundamental perspective, some worries remain. There is a short interest of more than 15% of the float, earnings are still negative and revenues have increased a paltry 1.17% in the last five years. Long-term debt is running at more than 400% of equity.

On the bright side, however, losses have been pared from $6.30 per share for the quarter ending December, 2002 to $0.60 per share in September 2003 and analysts are estimating that the company will swing to a profit in 2004.

Figure 1 Daily chart of Goodyear Tire (GT) showing a large inverted head & shoulders pattern with the left shoulder in September 2002, head in February 2003 and right shoulder in July. Note the small secondary inverted head & shoulders at the right of chart and trendline confirmed by being touched in at least three places.
Graphic provided by: MetaStock.
 
Chart pattern traders will have noticed the double inverted head and shoulders patterns (Figure1) and will be looking for the small inverted head and shoulders neckline to be broken, the large inverted head and shoulders neckline to hold and volume to confirm any upside movement. Once the smaller neckline is broken, it could be used as a stop-loss point.

Assuming that the current economic recovery stays on track, companies like Goodyear Tire should see earnings continue in the right direction and profit margins increase. It may be a little early to put the pedal to the metal when trading this company but if the chart is any indication, it is certainly attracting a lot more tire-kickers.




Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

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