MMM Stock: Bullishly Aligned
I have expressed my bullishness on 3M Co (NYSE:MMM) stock for some time now. This investment is a steady performer and its trend toward higher prices is simple yet effective.
Although there was some price weakness that was apparent in early fall, the price action has remained within the context of a well defined bull market. As long as MMM stock continues to remain constructive, the run to new highs that began off of the January low is set to continue.
For those not familiar with my work, I base my views on a particular investment on my analysis of the company’s stock chart. This method is known as “technical analysis,” and it is the body of knowledge that alleges that past price and volume can be used to discern trends and forecast future prices.
I have been using this method to create trading strategies for over a decade, and have enjoyed some success in doing so. The biggest standout of using this method is that it defines my level of risk, and risk management is the most important aspect of trading.
The following price chart illustrates the constructive long-term trend in 3M stock that supports a bullish view.
Chart courtesy of StockCharts.com
The MMM stock chart above illustrates the simple trend that has dominated trading action. The pattern is known as an ascending channel. An ascending channel has two parallel trend lines that define the upper and lower bounds. The price will oscillate between these two trend lines for as long as time permits. As long as MMM stock remains within the confines of these trend lines, the trend toward higher prices will continue.
It is not uncommon for price patterns to develop within these channels, and this is illustrated on the 3M stock chart above. The previous level of resistance that marked a high in early 2015 was tested from above after the price was able to breach this level. This price action is referred to as a “backtest.” A backtest serves to reaffirm that a previous level of resistance is now a new level of support, and that the predominant trend higher can now resume.
The following 3M stock chart illustrates why I believe that the run that began in January of this year is now set to resume.
Chart courtesy of StockCharts.com
Healthy price action consists of impulse waves that take a stock price higher, and consolidation waves are where the new higher prices are digested. Consolidation waves are essential in a healthy trend because they alleviate any overbought condition that may have developed as a stock moved higher, and they set up the next impulse wave that is set to follow.
The impulse wave that developed off of the January lows was unconventional, as the pattern is concave. In most cases, impulse waves are convex, but this doesn’t change the overall pattern that is in play. The price action action that followed the impulse wave constitutes the consolidation wave.
When this wave is completed and the price breaks above it, it would suggest that a new impulse wave in 3M stock is in development. The price objective of a bullish breakout above resistance would target the upper bound outlined by the ascending channel illustrated on the first MMM stock chart.
The bullish momentum that drove 3M stock this year was supported by a golden cross that was generated in March 2016. A golden cross is a signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. Traders use this signal to confirm that a bull market is on the horizon, and indicates that bullish momentum has overwhelmed any bearish momentum, and that the path of least resistance is higher.
The golden cross is still engaged, but it is in danger of averting as the moving averages that generated this signal have begun to converge. In bull markets, and under similar situations, I have seen a price accelerate in the direction of the predominant trend in order to avoid averting the bullish signal. MMM stock is perfectly aligned for such an outcome.
Bottom Line on 3M Stock
3M stock continues to trade with a bullish bias as the trend and price signals continue to suggest that the path of least resistance is higher. A close above resistance outlined by the consolidation wave would constitute a new all-time high in MMM stock, and would suggest that much higher prices are yet to come.