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The weekly chart of Toyota (NYSE: TM) shows price dynamics dating back to last summer, with the horizontal blue lines representing points of price support and resistance.
The dark blue channel shows a dual exponential moving average of 15 weeks. The B and S signals merely denote a buy trend bias is in play or a sell trend bias is in play from a probability perspective only.
Among auto sector stocks, though, Toyota Motor Company still has the most cash. This is the direct result of years of stellar performance, albeit the quality was not as great as touted by the automotive media.
As a stock within the auto sector, TM pays the same price as other automotive stocks. All are subject to oil prices, gasoline prices, and the supply-chain effects from natural and man-made disasters.
That is why auto sector stock investors as well as traders use technical charts so as to let the dynamics of price help find potential future price support where buyers may come in, and points of price resistance where sellers may overcome buyers.
For the record, the weekly chart gives a sufficient view from the top of the mountain, so to speak. It enables investors to see those points of price inflection.
In the case of TM, notice the low point of last summer, when TM was suffering from recall disease. That level of 67.56 is significant price support.
On the top side, we the 93.90 high of February 2011 as investors responded positively to the news that the accelerator issues were not eh direct result of electronics. Of course, market responses often get overdone; and this case was no different.
When rational thinking reentered, the stock tumbled to an April 2011 low of 75.85. So, we find TM searching for that balance of value between present conditions and future expectations, a the price this morning opened at 79.29, quite away from the February high and the recent May high of 84.00.
Still, TM is testing the range closer to the April low this late in May, a month when many traders sell and go away, as the saying goes.
What new news is out there to change future expectations? Frankly, I do not find much. Toyota stock will likely flow with moods of the market crowd this summer.
Nonetheless, as a trader, I find the swings of TM to be attractive enough to watch for entries as a short-term or swing trade here and there, especially now that May options have expired.
Perhaps it’s time to buy call options on TM as it approaches the swing low, or sell put options as you wait for a lower price; that is, if you are bullish on TM. And if you own TM, consider selling a call option for income at the top of the range. It’s your choice, as always.
For those who are strongly bearish, the choices obviously have to be different. You can buy put options until you find a change in sentiment.
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Disclosure: Frank Sherosky, creator of stocks charts for TN is author of "Awaken Your Speculator Mind" but does not hold any stock, option or futures position in this equity or futures at this time.
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More About the Reporter: After 39 years in the auto industry as a design engineer, Frank Sherosky now trades stocks, futures, and writes articles, books and ebooks via authorfrank.com. He may be contacted here by email: [email protected]
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