MMM Not Keeping Pace

10/05/06 08:07:21 AM

by Arthur Hill

The DJIA hit a new all-time high this week, but component 3M remains well below its prior high and is running into major resistance.

Security: MMM
Position: Hold

On the price chart (Figure 1), MMM declined from May to July with a big gap at the beginning of July. This gap broke the June consolidation and sliced through the 200-day moving average. The decline from 88 to 67 also broke through the February 2006 low, ushering in a long-term downtrend.

FIGURE 1: 3M. MMM declined from May to July with a large gap at the beginning of July (magenta oval).

Graphic provided by: TC2000.com.

Graphic provided by: Telechart 2007.

The stock recovered over the last few months, but the recovery is nearing resistance from the July gap, 200-day moving average, and a 50% retracement of the May–July decline. This resistance zone centers around the 200-day moving average (red box), and traders should keep a careful watch on the medium-term uptrend.

Yes, the medium-term trend is up — at least the trend since late July (Figure 2). MMM traced out a series of higher highs and higher lows the last few months. The pattern looks like a rising price channel and the bulls have the edge as long as the lower trendline holds. The stock established resistance at 75.40 with the September 19th high and a break above this level would argue for further strength to around 78.

FIGURE 2: 3M. The medium-term trend is up, at least since late July.

Graphic provided by: TC2000.com.

Graphic provided by: Telechart 2007.

A move below the lower trendline would be negative and support break at 72 would reverse this uptrend. Broken resistance at 72 turned into support with the late September low. A reversal of the current uptrend would be most bearish because it would call for a continuation of the May–July decline and project further weakness below the July low.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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MMM Not Keeping Pace

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