3M is a component of the Dow Jones Industrial Average that has lagged all year on pressure from Chinese tariffs. My call is to buy the stock below its monthly pivot at $170 down to its 2019 low of $159.32 to lock in its dividend yield at 3.41%.
3M qualifies to be a "Dog of the Dow" and its weekly stochastic reading is poised for a decline below 10.00 on a scale of 00.00 to 100.00, which would make the stock technically "too cheap to Ignore."
The stock closed down 1.28% to $166.69 on Friday, after closing Thursday down 11.4% year-to-date. The stock is in bear-market territory, 23% below its April 24 high of $219.75. The stock is up 6% from its June 3 low of $159.32.
Among nine Wall Street analysts, there are no buy ratings, seven hold ratings and two strong sell ratings on the stock, but the average price target is $187. This makes it important to focus on dividends and chart patterns that are virtually ignored by many fundamental analysts.
Many investors are chasing dividends by purchasing the Utilities Select Sector SPDR Fund. This was appropriate when the dividend yield was above 3%. Today the dividend yield for this ETF is just 2.86% with the ETF fading from its all-time intraday high of $61.19 set on June 7. Investors are better off investing in the current and future "Dogs of the Dow."
3M is a multi-national technology conglomerate that manufactures industrial, safety and consumer products including the ever-popular post-it notes.
The daily chart for 3M shows a huge price gap lower on April 25, after it reported an earnings miss and disappointing guidance. The downside continued until the 2019 low was set on June 3 at $159.32. The chart shows the semiannual pivot at $209.01, which was a magnet between Feb. 13 and March 29. The monthly pivot for June at $170.00 was a magnet between June 10 and June 13.
The weekly chart for 3M is negative but oversold with the stock below its five-week modified moving average of $175.95 and below its 200-week simple moving average or "reversion to the mean" at $190.50. The 12x3x3 weekly slow stochastic reading is projected to fall to 10.83 this week down from 12.16 on June 7. Given continued weakness, this reading will fall below 10.00, making the stock technically "too cheap to ignore," justifying a long position on weakness. Note how the stock stayed below its quarterly and annual risky levels at $227.89 and $230.32, respectively. The stock's all-time intraday high of $259.77 was set during the week of Jan. 26, 2018.
Trading Strategy: Buy weakness below its monthly pivot at $170.00 down to its June 3 low of $159.32. Reduce holdings on strength to its "revision to the mean" at $190.50.
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level changed at the end of January, February, March, April and May. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
The close on June 28 is the second most important for 2019. This close is an input to my proprietary analytics and will generate new weekly, monthly, quarterly and semiannual levels.
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
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