Mapping the Market: Why 3M shares might be set to rally again
By Christopher Romano
Sept 25 (Reuters) - Shares in 3M MMM.N are showing signs that a rally that propelled the industrial giant to eight-year highs this summer before it fizzled over the past month might resume, a technical analysis of its stock chart shows.
Click here for a detailed technical analysis chart.
3M had been rising since March, a winning streak that became supercharged in July after the company raised its full-year profit forecast, but then its stock began pulling back late last month.
In analyzing charts, one thing technical analysts pay attention to is called a “support,” a price level that acts like a floor for the stock. The stock’s behavior around such support levels can determine whether shares continue falling or begin gearing up for the next phase of gains.
In 3M’s case, that support, called a 50% "retracement,” corresponds to the halfway point of the rally since March. Over the past month, 3M’s shares briefly fell below that level but did not stay there long enough, a possible bullish sign for the stock.
Another metric that is sending a bullish signal for the stock is called the relative strength index, a closely watched gauge of market momentum that indicates whether a price is oversold or overbought — meaning a move is likely to continue in that direction without pausing.
With 3M’s shares falling, a test was how RSI would behave around a two-month low of $160.27, which was struck on September 14. The RSI failed to confirm it, which means it did not hit a low for 3M the same day as the stock price. This is called divergence and is seen as a bullish sign in 3M's case because it signals that downward momentum is waning. Also, RSI was at levels that technical analysts recognize as oversold — a positive signal for the share price.
Since that divergence, 3M has risen to price levels near $170 that may prove crucial in deciding its next move. This price level is resistance — the opposite of support, or a price ceiling — and a string of closes above $170 would set a course first for the stock to reach $184-$185, where more resistance is located. After that, analysts would target the $195 and $205 areas, followed by the all-time high of $217.19 struck in 2018.
Another tool that technical analysts use to gauge momentum called MACD — which stands for moving average convergence divergence — is also sending positive signals.
However, a fall through the 50% retracement near $162 and September 14 low of $160.27 would leave the bullish scenario in tatters.
3M did not immediately respond to an emailed request for comment.
What the chart shows:
Fading downward momentum after September 14 low of $160.27
Break above $170 resistance targets $184-$185, then $195, $205 and the 2018 record high of $217.19
Fall through the area around $162 and $160.27 damages bullish scenario
(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute investment advice or trading recommendations. )