3M Company (MMM) beat earnings per share estimates on July 28, but the stock gapped below its 50-day and 200-day simple moving averages (SMAs). 3M stock then stabilized around its quarterly pivot at $152.54. Formally known as Minnesota Mining and Manufacturing Company, 3M is a multinational conglomerate operating in the industrial, worker safety, health care, and consumer goods sectors.

The stock closed Tuesday, Aug. 4, at $151.21, down 14.3% year to date and in correction territory at 17.2% below its Jan. 14 high of $182.54. 3M is also in bull market territory at 32.6% above its March 23, but the stock is consolidating a bear market decline of 37.5% from its Jan. 14 high of $182.54 to its March 23 low of $114.04. Its weekly chart is negative.

The stock is reasonably priced, with a P/E ratio of 17.76 and a generous dividend of 3.91%. As a component of the Dow Jones Industrial Average, this profile makes the stock one of the Dogs of the Dow for 2020.

The daily chart for 3M Company

Daily chart showing the share price performance of 3M Company (MMM)
Refinitiv XENITH

The daily chart for 3M shows a declining 200-day SMA in green. There were two crossovers – the 50-day SMA rose above the 200-day SMA on Jan. 16 and then fell back below it on March 6, confirming a death cross. This sell signal led the stock to its March 23 low of $114.04.

The V-shaped bottom from this low returned the stock to its 50-day SMA on April 7. 3M then peaked at $163.08 on April 28 as a failed test of its 200-day SMA. The 200-day SMA has become a magnet since then, with a low of $131.12 on May 14 and a high of $169.54 on June 8.

The quarterly pivot at $152.54 became a magnet between July 9 and Aug. 5, which is today. 3M stock is currently trading below its 50-day and 200-day SMAs at $157.25 and $158.35.

The weekly chart for 3M Company

Weekly chart showing the share price performance of 3M Company (MMM)
Refinitiv XENITH

The weekly chart for 3M is negative, with the stock below its five-week modified moving average of $154.73. The stock is well below its 200-week SMA, or reversion to the mean, at $190.28. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 63.50 this week, down from 67.10 on July 31.  

Trading strategy: Buy 3M Company stock on weakness to its weekly and monthly value levels at $142.82 and $138.26. Reduce holdings on strength to its 20-day SMA at $158.35. The quarterly pivot remains at $152.54.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each level uses the last nine closes in these time horizons.

The third quarter 2020 level was established based upon the June 30 close, and the monthly level for August was established based upon the July 31 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by a gain of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.