Monday, February 1, 2010

Can Toyota Bounce Back?

Not just as the leading auto maker known for quality but also as a stock?

The sticking pedal recalls and production suspension (which was ordered by the Obama administration, by the way) clobbered Toyota (TM), from the 52-week high of $91.97 on January 19 to $76.51 on January 29, a 17% haircut.

But if you look at the chart, despite the sudden, violent drop, the move was still within the channel that the stock has been in since July last year.

The drop was arrested at the trend line from May last year, and today's bounce stopped at 200-DMA. You would think a news-driven drop like this would defy any TA.

So, ignoring the political chatter (Toyota is being hauled in front of the House Energy and Commerce Committee), can TM recover?

If I draw Fibonacci retracement lines from the recent top to the bottom of last Friday, there is a congested area between 38.2% retracement and 61.8% retracement. It may be able to go back to that area at least, and that would be between $84 and $86.

Since the damage was severe on an extremely high volume for the stock, it may bounce around between $76 and $80 for a while before it makes the next move. Today (Monday)'s move was still a DCB (dead cat bounce) after a huge plunge. Let's see how the stock behaves from here.

(By the way, there are people who say Toyota was politically targeted by Obama for the benefit of Government Motors.)

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