The Rally in 3M Stock Is Set to Continue

3M StockMMM Stock: Geared Towards Higher Prices

3M Co (NYSE:MMM) stock has been a wonderful investment this year. It is currently up 17.52% year-to-date, and I do not have any reason to believe why this performance cannot, and should not, continue. Aside from the month of January, 3M stock has posted back-to-back monthly gains. I have the inclination that this rapid pace towards higher prices is set to continue.

My beliefs surrounding 3M shares are not based on a gut feeling, but instead on a more systematic approach to analyzing investments, known as technical analysis. This method of investment analysis assumes that historical price and volume data can be used to project the future direction of a stock’s price. I chose this method, and continue to use it, because the information it provides is second to none and is very valuable when applying this method to an investment strategy.

The price chart illustrates that MMM stock has been on rocket ride towards higher prices since it bottomed in October 2011 at $59.38. This rocket ride has been characterized by higher highs and higher lows, which create the quintessential bullish trend that begins in the lower left and ends in the upper right of the price chart.

The following 3M stock chart illustrates the predominant bullish trend and the indications that are supporting the current advance.

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3M stock chart

Chart courtesy of StockCharts.com

The price chart illustrates that MMM stock has been on rocket ride towards higher prices since it bottomed in October 2011 at $59.38. This rocket ride has been characterized by higher highs and higher lows, which create the quintessential bullish trend that begins in the lower left and ends in the upper right of the price chart.

This bullish trend is easily captured using a simple uptrend line. This uptrend line is created by connecting the significant valleys on the price chart. This simple trend line acts as the dividing line between a healthy investment and an unhealthy one. As long as MMM shares are trading above this uptrend line, I can only assume that this investment remains healthy and the bullish trend is set to continue.

The moving average convergence/divergence (MACD) indicator has been instrumental in suggesting when this investment was set to appreciate. MACD is a trend-following indicator that uses signal-line crosses to distinguish between bullish and bearish momentum.

In August 2012, a bullish MACD cross was generated, indicating that bullish momentum had overwhelmed any and all bearish momentum, creating an environment where the path of least resistance was geared towards higher stock prices. This indicator was engaged for three years before it gave way to a bearish cross, indicating that the intermediate ascent had concluded.

The bearish cross halted any further gains and 3M shares traded sideways until May 2016, where a new bullish cross was generated. The bullish cross caused the bullish trend to resume, and new highs were once again gracing the 3M price chart.

In November 2016, the MACD indicator was converging and a bearish cross was imminent, but it was unable to generate. Averted signals should never be ignored, because they are extremely powerful indicators. The inability to generate a bearish signal indicates that there is an extreme amount of inherent bullish strength contained within the investment. Such circumstances cause the predominant trend to accelerate, because anyone who was anticipating a bearish cross needs to immediately unwind their position, fueling and accelerating the current rally.

The MACD indicator remains in bullish alignment, suggesting that the current appreciation has further room to run. This bullish view is reinforced by the following 3M stock chart.

3M price chart

Chart courtesy of StockCharts.com

This MMM stock chart is using the exact same time frame as the preceding price chart, but this time I am focusing the waves that occurred above the uptrend line. This price chart contains two distinct waves: an impulse wave and a consolidation wave. These waves are necessary to create a sustainable trend.

The function of an impulse wave is the progression of price, which is characterized by a linear acceleration of price. The function of a consolidation wave is to create the necessary environment for the development of an impulse wave. A consolidation wave acts as a midpoint between two impulse waves.

In May 2016, MMM stock broke out above the consolidation wave, suggesting that a new impulse wave was set to develop. This indication coincided with a bullish MACD cross, which reinforced the notion that higher prices were on the horizon.

3M stock did not accelerate higher until after the stock price returned to test the level of resistance that defined the consolidation wave. Returning to test a previous level of resistance from above is what I refer to as a backtest. This price action is very common. It serves to reinforce that the break above resistance was legitimate while simultaneously establishing a new level of price support. Once this backtest was complete, MMM shares began to accelerate as anticipated.

Constructive price action can also be used to generate a potential price objective. This price objective is generated based on the assumption that the consolidation wave is acting as a midpoint within the larger predominant trend. Therefore, the preceding impulse wave should mirror the impulse wave that is in development. If I apply this theory to the price action on MMM price chart, it produces a potential price objective of $225.00.

Bottom Line on 3M Stock

3M stock has been a wonderful investment, and I have reason to believe that this exceptional level of performance is set to continue. These beliefs are centered around the price action and indications on the MMM stock chart, which continue to suggest that the path of least resistance is geared towards higher prices.