3M Company is a diversified technology giant, founded in 1902. It is a component of the DJIA, the S&P 500 and S&P 100. Its steady earnings and dividend records makes it one of the most beloved blue chip stocks in the U.S., which people think can be bought at any price, because they always seem to go up. We do not think so. No trend lasts forever so the price you pay always matters. For instance, 3M stock fell nearly 60% during the 2007-2009 market crash – from $97 to $40.87 a share. Fortunately, 3M proved it is a great company and is currently trading above $178 a share – a recovery of over 430% from the March 2009 low. Does this mean investors should go ahead and buy near all-time highs? The Elliott Wave Principle applied to the monthly log chart below might help us find the answer.
It makes the entire uptrend since the year 1970 visible. 47 years of price data allow us to see that 3M’s bull market has been developing as one large five-wave impulse, travelling from as low as $4.47 to as high as $182.27 in split-adjusted prices. Wave II is a sideways corrective combination between a double zig-zag in wave (w) and a triangle in wave (y). The sub-waves of wave III are also clearly visible. Wave IV, obeying the guideline of alternation, is a sharp and swift decline. This leads us to wave V, which is still in progress, but seems to be in its final stages.
According to the Wave Principle, every impulse is followed by a correction of three waves in the opposite direction. This means that once wave (5) of V is over, 3M stock should reverse to the downside for a major three-wave decline, which could be expected to take prices down to the support area of wave IV. In terms of price, this translates into a selloff all the way back down to the 2009 lows near $40 a share. And before you say that this is impossible, we would like to remind you that the same pattern caused Cigna Corporation to crash from above $56 to $8 a share between June 2007 and November 2008.
Mark Twain once said that “history doesn’t repeat itself, but it does rhyme.” If we use history as a guide here, 3M Company stock could be expected to enter a major bear market soon, which could ultimately cost it nearly 80% of its market value. In our opinion, 2017 is going to be a bad year for 3M investors.