3M Company (MMM) reported its latest quarterly earnings on July 25, and after a solid beat, the stock popped to $187.72 that day. However, negative news on the trade war with China resulted in a quick reversal. The stock plunged to a fresh 2019 low of $158.04 on Aug. 7, moving below the monthly pivot for August at $164.98.
3M stock closed last week at $163.47, down 14.2% year to date and in bear market territory at 25.6% below its 2019 high of $219.75 set on April 24. The stock set its 2019 low of $158.04 on Aug. 7 and then rebounded to its August pivot at $164.98. The stock is reasonably priced with a P/E ratio of 17.62 and a generous dividend of 3.51%. As a component of the Dow Jones Industrial Average, this profile will qualify the stock as a member of the “Dogs of the Dow” in 2020.
3M Company was formally known as Minnesota Mining and Manufacturing Company, a multinational conglomerate operating in industry, worker safety, health care, and consumer goods. Some on Wall Street believe that the company should focus more on its health care segment, which is highlighted by its acquisition of Acelity and its focus on wound care.
The daily chart for 3M shows a huge price gap lower on April 24 after the company reported weaker-than-expected earnings and offered disappointing guidance. This gap lower led to the formation of a “death cross” on May 17, when the 50-day simple moving average fell below the 200-day simple moving average to indicate that lower prices would follow. This signal remained in play as the stock set its 2019 low of $158.04 on Aug. 7. The stock is well below its quarterly, semiannual, and annual risky levels at $195.64, $219.44, and $230.32, respectively, with its monthly pivot at $164.98.
The weekly chart for 3M is neutral, with the stock below its five-week modified moving average of $173.27 and below its 200-week simple moving average, or “reversion to the mean,” at $191.67, last tested during the week of May 3, when the average was $190.03. Note that the stock had a bear market decline of 39% from its all-time intraday high of $259.77 set during the week of Jan. 26, 2018, to its Aug. 7 low of $158.04. The 12 x 3 x 3 weekly slow stochastic reading rose to 34.16 last week up from 32.99 on Aug. 2.
Trading strategy: Buy the stock around its monthly pivot at $164.98 and reduce holdings on strength to its quarterly, semiannual, and annual risky levels at $195.64, $219.44, and $230.32, respectively.
How to use my value levels and risky levels: 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 annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on July 31. The quarterly level was changed at the end of June.
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 shares 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 their time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.