Similar to many other stocks, 3M Company’s shares took a major hit during the 2007-2009 market crash. The stock lost nearly 60% of its valua, falling from as high as 97.00 in October 2007 to as low as 40.87 in March 2009. And, just as many other stocks, 3M has been in a strong uptrend ever since. Just several days ago prices reached a new all-time high by climbing above 171 dollars a share. That is a massive 130-dollar rally in just 7 years, so you might think sky is the limit and now is the time to invest in 3M Company. Our advice is to think twice.
The Elliott Wave Principle is a technical market forecasting method, famous for its ability to help traders and investors predict reversals. Its main postulate says that trends move in repetitive patterns, called waves. There are two types of waves – impulsive and corrective. Impulses consist of five sub-waves and move in the direction of the larger trend. Once the fifth wave of an impulse is over, a correction in the opposite direction occurs. Keep that in mind and take a look at the weekly chart of 3M Company stock, shown above.
That is right. The entire advance since March 2009 looks like a textbook five-wave impulse, developing between the parallel lines of a trend channel. Wave (5) has already exceeded the top of wave (3), which could be seen as a reason for optimism by many. However, according to the Wave principle, we should prepare for the corresponding three-wave retracement. In addition, the relative strength index is showing the typical bearish divergence between waves (3) and (5), which further supports the negative outlook.
So, if this is the correct count, buying 3M shares could be worst possible decision, because the stock appears to be in reversal territory. No trend lasts forever. The bears seem eager to take over.
What other markets are you interested in? Prepare yourself for whatever is coming. Order your on demand Elliott Wave analysis now or pre-order one of our 8 Premium Forecasts due out every Monday. Stay ahead of the news in any market with the Elliott Wave principle.