It’s been a bad month for the market. Rate uncertainty, trade war fears, and civil unrest in Hong Kong have run equities ragged over the last two weeks.
But some companies, specifically those that are more “trade war sensitive”, have been hit harder than others.
Stocks like Intel (semiconductor sector) and Caterpillar (farm and construction equipment sector), for example, dropped mightily following the Fed’s July 31st rate cut.
What’s happened since makes it very hard to be a bull these days, across several important industries.
And analysts are starting to take notice.
“While Caterpillar and 3M are poster children for the global slowdown and all the problems with China trade, I think Intel is the most vulnerable,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management.
“Its own organic business is being threatened by all sides. AMD is really hurting it in the cloud. It’s really unable to do anything in mobile, and the margins are really compressing.”
What I found intriguing about Schlossberg’s statement was his mention of 3M, one of the “poster children for the global slowdown”. Much like the other stocks he discussed, 3M share prices have absolutely tanked in the month of August.
But unlike the other companies hit by trade war drama, 3M sits in a unique spot, as it’s teetering on the edge of a cliff.
In the weekly candlestick chart above, you can see that MMM is rapidly approaching key support at $160. And based on the current downwards momentum, a breakout below $160 seems inevitable.
Over the last year, the stock has been locked into a downtrend, complete with the setting of consecutive lower lows.
Even worse, shares prices were unable to break past key resistance at $220 last April. Instead, they simply bounced off the upper Bollinger Band before collapsing.
Equities are still up for the year despite the recent selling, but MMM hasn’t enjoyed any of that goodwill being reflected in the general market.
So, with a dip below $160 in sight, bears are undoubtedly licking their chops in excitement. Because once the selling starts after a downwards breakout, the next level of key support is at $135 – a whopping 15% off the current price.
And if the last big red candlestick (from April) is any indication, then a major drop could be possible.
However, if MMM survives the next few weeks and manages to close above support at $160, then we’d likely see a very attractive setup in the opposite direction – creating a “double bottom”, indicating a trend reversal.
But again, based on what MMM has done over the last year, that scenario seems less probable. As long as the trade war rages on, share prices look intent on falling further.
And a drop below $160, though bad for MMM bulls, would be a great sign for opportunistic bears to go short.