MMM Is Breaking Down

05/28/08 12:16:51 PM

by Arthur Hill

After a big outside reversal week, MMM broke rising wedge support, pointing to lower prices ahead.

Security: MMM
Position: Sell

On the weekly chart (Figure 1), 3M broke major support with a sharp decline in October–November 2007. After a brief oversold bounce, the stock continued below 75 in December 2007 and January 2008. This decline created an oversold condition, and a rising wedge took shape. These are typical for corrective advances. In other words, the sharp decline started a downtrend and the rising wedge was a countertrend move.

FIGURE 1: MMM, WEEKLY. 3M broke major support with a sharp decline in October through November.

Graphic provided by: MetaStock.

The wedge ended abruptly with a bearish engulfing in April 2008 and a trendline break in May. For the bearish engulfing, note how MMM gave back ALL the gains from the prior long white candlestick (red oval). With some follow-through in May, the stock broke wedge support, signaling a continuation of the October–January decline.

Figure 2 focuses on daily price action and MMM shows relative weakness. The top indicator is the price relative, which compares the performance of MMM against the S&P 500 ETF (SPY). The price relative broke support in late April and this started a period of relative weakness for MMM. With the price relative drifting lower throughout May, MMM continues to shows relative weakness and this is bearish.

FIGURE 2: MMM, DAILY. The top indicator is the price relative, which compared the top performance of MMM against the S&P 500 ETF.

Graphic provided by: MetaStock.

On the price chart, MMM is currently consolidating between 75 and 80. Look for a consolidation break to trigger the next signal. Given the weekly chart break down and relative weakness, the odds favor a support break at 75. This would signal a continuation lower and project a move to new lows.

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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