Toyota (TM) may be a beneficiary of the yen’s recent losses against the U.S. dollar as well as some encouraging economic news. As the U.S. dollar bottomed at fresh 15-year lows against the yen on November 1st, Toyota’s stock ended its last swoon. On November 4th, TM gapped up and closed 3% higher on a day in which October U.S. domestic auto sales were reported at 9.27M, the highest level since September, 2008, excluding Cash for Clunkers. The next day, TM reported earnings and crossed its 200-day moving average (200DMA) for the first time in seven months (TM slightly lowered its FY11 revenue forecast from 19.5T yen to 19T while slightly increasing its expectations for FY11 income to $350B yen from $340B.) Three trading days later, TM finally closed above the 200DMA and has not looked back since.
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*Chart created using TeleChart:
TM has gained over 10% in November on a surge that has broken the stock out of a five month consolidation pattern. Consolidation patterns are important because they build a base of buyers who are usually determined to hold on to a stock. Thus, a move upward tends to be sustained.
This potential bottom stands in contrast to the near-term bottom I noted in the wake of Toyota’s recall issues earlier this year. At that time, it appeared sellers had been washed out of the stock. Trading volume was extremely heavy and volatility was high. The bottom eventually produced a sharp rally for about a month, but it succumbed, like most stocks, to the global sell-off in April and May.
As closely as I watch currencies, including the yen, I should have more quickly noted the great upward potential in Toyota’s stock. Moreover, the post-earnings breakout was a golden buying invitation. I hate missing these signals, but I am actively monitoring TM now. I will be looking to buy on the next dip (I am guessing the first dip in this bullish move will find good support at the 20DMA). Of course, a rapid resumption of strength in the yen and/or a drop back into the consolidation area might cause me to exit the trade. A convenient upside target is a fill of January’s big gap down from $87 (see chart above).
(Economic and earnings data from briefing.com)
Be careful out there!
Full disclosure: long USD/JPY