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3M Stock Is a Toxic Stock After Earnings

Tyler Craig

3M (NYSE:MMM) stock has spent the last two years stuck in bear country. And just when it looked like the industrial giant was going to finally depart, a nasty earnings announcement upended its flight plans. Today we’ll take a renewed look at the trends and price levels that matter in the aftermath of January’s disappointing report.

Source: TY Lim / Shutterstock.com

3M stock put together an impressive recovery attempt during the fourth quarter, rising 19% off the lows. The ascent powered 3M back above its 200-day moving average for the first time since April’s disastrous earnings pushed it into the abyss.

Buyers returned, optimism improved, and the stock was poised for a solid start to 2020. Until earnings arrived to trash the turnaround, that is.

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January’s announcement revealed adjusted earnings per share of $1.95 on $8.11 billion in revenue. Analysts were estimated $2.10 of earnings on $8.11 billion in sales. The company also announced additional job cuts.

3M Stock Charts

Source: The thinkorswim® platform from TD Ameritrade

The weekly trend shows 3M still stuck in a two-year descending channel. With last week’s debacle, it’s now submerged back beneath its 50-week and 20-week moving averages.

I peg support at $154 and resistance near $182. Until either level gives way, expect more of the same choppy to bearish behavior. From its 2018 peak, 3M is down 38%. I won’t even mention its relative performance. With the S&P 500 courting record high after record high during the past two years, you can imagine how abysmal 3M has been by comparison.

The daily chart more clearly reveals the details of last week’s whack. In the six days since its underwhelming report, the stock has fallen 10.5%. Along the way, it’s almost given back all that was gained during its fourth-quarter recovery.

The shares are popping today buoyed by the rebound in the broader market, but with the sharp increase in momentum during its downswing, I suspect this is a rally that will fail. Rather than fishing for a bottom, I suggest using strength as an opportunity to build bearish trades from a better vantage point.

Source: The thinkorswim® platform from TD Ameritrade

A run toward $165 or $170 would create a compelling bear retracement setups.

Volume patterns are weighing in favor of a bearish view. Five of the past seven trading sessions saw distribution suggesting institutions are heavy sellers right now. Color me skeptical that a multi-day bounce will change their disposition. Plus, with all the support zones shattered during the recent downswing, there are multiple resistance zones now looming overhead.

Implied Volatility

On the implied volatility front, premiums have deflated modestly after last month’s earnings report and now sit at the 37th percentile of the one-year range. The expected daily moves moving forward are $2.23, so set your expectations accordingly.

With implied volatility essentially in the middle of its range, I don’t have a strong opinion on whether long or short options trades are best. Couple that with a stock that is just starting to bounce from oversold conditions, and it’s difficult to suggest a trade at this point.

That said, if 3M stock can rally back to the $165-$170 area, then I think short trades are worth a shot.

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!

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