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Behind Toyota’s Recent Stock Movement: What the Technical Analysis Suggests

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Toyota’s fiscal 2016 earnings

While valuation multiples can help investors make decisions for the long term, it’s also important to look at key technical support and resistance areas. These support and resistance areas may be considered an ideal entry or exit price levels for investors.

On May 12, 2016, Toyota Motor Corporation’s (TM) ADR (American depositary receipt) was trading at $98.44. The price has formed a “head-and-shoulder” technical pattern. A head and shoulder pattern is considered to be a “reversal formation” in technical analysis, and any breach of the neckline confirms the pattern.

Behind Toyota's Recent Stock Movement: What the Technical Analysis Suggests

Within this kind of formation, the distance between the peak of the head (near $145) and the neckline (near $111) is ~$33. As the graph shows, the price already breached below the head-and-shoulder pattern neckline at $116 in January 2016. Since then, the price has been in a bearish trend.

This means that the possibility of TM’s stock approaching the price target of this head-and-shoulder formation near $83 remains open. A key horizontal support level lies near $83 as well. On the upside, the price may face immediate horizontal resistance near $108.90.

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Understanding technical price levels

Technical support levels are those levels below the current market price that may provide support to a stock in case of a negative price action. Likewise, resistances are found above the current market price and may resist price movement through them. This makes support and resistance level potential reversal zones.

In simpler terms, upward price movements may see resistance around resistance levels, and downward price movements may hit roadblocks around support levels.

The auto industry in 1Q16

In the past two to three weeks, all the major US auto companies (XLY) have released their 1Q16 results. Ford (F), General Motors (GM), and Fiat Chrysler (FCAU) all posted strong results for 1Q16. However, Harley-Davidson’s earnings remained mixed, with falling margins and lower demand in North America.

Auto investors can read more about 1Q16 earnings of the auto companies in the following earnings review series:

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