When it comes to Dow Jones Industrial Average stock 3M (NYSE:MMM), investors have been faced with their share of ailments off and on the price chart. But following a new sales report, will the old doggish trend in MMM stock remain the bears’ best friend? Or will it mark new profitable beginnings for bulls? Let’s take a closer look at what’s going on with 3M right now.
Many stocks in today’s market can point to the novel coronavirus as a source for challenges facing those companies in an unfolding socially distanced environment. Take a look at the grounding in airline giant Delta Airlines (NASDAQ:DAL) or the TKO in casino heavyweight Las Vegas Sands (NYSE:LVS) as two common victims. It’s not pretty. That’s not the entire story though.
Many blue-chip stocks within the Dow Jones are adapting. Home Depot (NYSE:HD) is one constituent whose price chart points at a company figuring out how to successfully service consumers through the coronavirus pandemic. And tech giant Microsoft (NASDAQ:MSFT), the market’s largest publicly traded company, simply appears to be well-built for this unthinkable, disruptive socioeconomic shift. Unfortunately, 3M (and, by extension, MMM stock) is different.
Despite the industrial conglomerate’s well-positioned N-95 respirator mask success during the new pandemic and some spoils from other health-related business units, 3M’s April sales dipped 11% from the year ago period according to a report released Thursday. Softness in other key market segments, including safety and industrial, consumer, transportation and electronics weighed on the company’s total sales decline.
The news comes after 3M announced in late April it was withdrawing full-year guidance due to the pandemic. Management stated it will keep investors informed vis-à-vis monthly updates until a more accurate, longer-term forecast is possible. The first of these reports also appears to have been a surprise for Wall Street.
MMM stock slid to its weakest levels since late March during Thursday’s session. However, a rebound in the broader market from out-the-gate selling following back-to-back days of profit-taking helped lift the stock well off intraday lows to close down just 0.75%.
But is 3M a pullback worth buying?
MMM Stock Monthly Price Chart
Source: Charts by TradingView
Earnings at the tail end of April saw investors bid up MMM stock by more than 2.50% and notch a two-month high. The action also established follow-through confirmation for a bullish monthly chart hammer candlestick formed during March’s broader market correction. That’s not all though.
Technically, the hammer is well-supported by the 62% retracement level dating to 3M’s 2009 financial crisis bottom. Also favorable, the candlestick’s body completed narrowly above a long-term trend-line. It’s the sort of evidence that makes the case for a meaningful bottom following a two-year long bear market. But a hard pullback over the past two weeks might raise a flag regarding the pattern’s durability.
A second look at 3M’s monthly chart reveals the immediate post-earnings bid has yielded to another potential lower high pattern in MMM stock’s existing downtrend. The rally high also failed rather quickly on an initial challenge of nearby resistance. It’s not the sort of price action investors caught purchasing 3M’s hammer are likely excited to see.
The good news, if any, is 3M’s stock is offering a pullback opportunity with solid risk versus reward characteristics. Shares are inside a support area from roughly $115 to $141 and above the trend-line, which held the body of April’s hammer. Stochastics have also signaled a bullish crossover inside oversold territory.
My advice for any would be buyers of 3M is to set a stop-loss beneath $129. This level minimizes dollar risk to about 5% as of Thursday’s close. At the same time, relative to the recent high a return of nearly 20% is possible and skews the risk profile heavily in favor of buying stock. Moreover and to make sure an old and friendly doggish trend doesn’t continue to rollover, this exit smartly pulls the plug if a bearish April pivot high is confirmed and 3M falls ominously inside the lower half of its hammer bottom.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.