MMM, patience will payMMM (3M Company) saw a significant surge of +22.99% on Friday's close, which might suggest extraordinary earnings, but that's not the case. The earnings report was in line with expectations and didn't reveal anything particularly noteworthy. The substantial rise in the stock price can be attributed to a short squeeze, where trapped short traders were forced to cover their positions, leading to continuous buying pressure.
Analysis:
Earnings Report: The earnings did not indicate exceptional performance, which means the stock's movement is driven by technical factors rather than fundamentals.
Short Squeeze: Many traders who were short on common shares or involved in short calls/long puts found themselves trapped, forcing them to cover their positions. This created a buying frenzy, pushing the stock price higher.
Liquidity Level Break: The price broke past a key liquidity level on the weekly chart at $115.38. Once this level was tested, shorts likely attempted to push the price down, but the reversal never happened, leading to continuous short-covering.
Key Levels to Watch:
$125/$135 Levels: Critical resistance levels. If the price shows bearish behavior under $125, it could be a signal to short for a retracement back to $115. Conversely, if the price breaks above the high of the earnings PEG candle, the next test would be around $134.
Weekly and Monthly Fair Value Gaps: The high of the weekly fair value gap (FVG) is $128.50, which aligns with Friday's high. Rejections around this level could prompt a short trade with a stop at the pivot high. Additionally, there are FVGs around $130 and $135-$142, which should be considered in trading decisions.
Plan:
Bearish Under $125: Watch for bearish price action under $125 to set up a short swing trade targeting $115.
Break Above $128.50: If price action confirms a break above $128.50, the next target would be a test of $134. Any rejections around $134-$135 could present shorting opportunities.
MMM's price action on Friday is largely a result of a short squeeze rather than fundamental strength from earnings. Traders should pay close attention to how the price reacts at key levels ($125, $128.50, $134-$135) for potential trading opportunities, either for a continuation of the rally or a retracement.
By monitoring these levels and waiting for price action confirmation, traders can better manage their entries and exits in the stock.
