3M Company (NYSE:MMM) is a stock ahead of its time. It didn’t need a coronavirus-inspired plunge to usher it into a bear market. It’s been in bear country for over a year, thank you very much. But the recent souring of the broader market is likely to extend MMM stock’s stay.
Let’s take a look at the trends and price levels that are currently driving this multinational conglomerate.
Over the short-term, technicals, sentiment and news are significant drivers of a stock price. But as you extend out your view and embrace the long-term, fundamentals become paramount. Thursday’s crash ushered MMM stock to within 1% of the halving threshold. That means it’s now lost 50% of its total value. Cuts like that are almost always driven by earnings deterioration, which is why we shouldn’t find it surprising that January’s quarterly report saw the smallest earnings per share ($1.66) since January 2016.
Furthermore, the five-year annual earnings trend took a big step back in 2019, falling to $7.81 from $9.18 for 2018. Moving forward, the specter of a recession will only worsen 3M’s earnings prospects.
MMM Stock Charts
Squeamish bulls should probably shield their eyes from the following price charts. They’re bloody and speak to just how much damage has been inflicted to 3M shares. Let’s start with the weekly.
Despite carrying the usual amount of chop, the weekly downtrend has been quite orderly. We can easily draw channel lines to define the two-year trend. The lower trendline has been particularly useful at nailing support zones along the way. Last week’s crash brought fresh momentum to the descent and shattered all hopes that the downtrend might slow. Note how the RSI put in a new low Thursday to confirm sellers’ dominance.
With the support area near $155 now potential overhead resistance along with all major moving averages, rallies are suspect and should be used to lighten up on bullish trades and/or add bearish ones.
The daily time frame showed a low base pattern developing before Thursday’s plunge. Ever since January’s underwhelming earnings announcement shattered the uptrend, 3M stock has been in bear mode. The descending 20-day moving average has sat heavily on top of the shares, halting the few rally attempts that have cropped up. Tack on the groundswell in distribution days and it’s impossible to construct a bullish argument here.
Perhaps the only thing would-be buyers can say is that MMM stock is really oversold and cheap compared to two years ago. But in my experience, that’s about the worst reason ever to buy a stock. During the 2008 meltdown, the stock fell to $40.87, so it’s not as if it can’t get cheaper.
A multi-day bounce would be ideal from here to provide lower-risk entry points for bear plays. Bear put spreads are my play of choice when/if it comes.
The Trade: Buy the Jun $130/$120 bear put spread for around $4.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!