TM: Toyota's Recall Blues

Toyota Motors, TM, shows how quickly things can change in a capitalist economy. Just a year after surpassing GM as the world's largest automaker, Toyota finds itself beset at every turn with allegations of unsafe accelerators and brakes, and a growing reputation as a company that ignores bad news rather than jumping to make things right.

The founding ancestor of Toyota Motors, Sakichi Toyoda, who enunciated the family "5 Whys" business principal, must be looking down aghast from Japanese Ancestor Heaven asking "Why Why Why Why Why" his descendants have managed to mess things up so badly.

How badly? About 22.6% worth of badly, if you can believe the stock's American shares. That's how much the price dropped from the near-term high set Jan. 19, when the present corporate crisis moved into overdrive, to the low set Feb. 4, the day earnings were released. Shares have since rebounded 6.9%.

The macd is bearish on TM. Person's Proprietary Signal is showing a bull mark at this point in the trading day. The 20-day moving averaged has moved beneath the 50-day, a bearish sign. Before we blame brakes and gas pedals for TM's woes, let's step back a bit. A five-year chart shows TM peaked in February 2007, and marched down with a series of lower lows and lower highs until it reached bottom in November 2008, just in time for the collapse of capitalist finance. Altogether in those 22 months the shares lost 60% of their value.

From February 2007, the price began an uptrend -- higher highs and higher lows -- that was broken with the most recent decline. The fall stopped at the top of a long period of congestion running from November 2008 to March 2009. To me this says that the market's judgment is favorable to Toyota. The company hit a rough patch, but it can make it right and regain its strength and reputation. If that were not the judgment, then that 2008-2009 support level would have done little to halt the rout.
TM, in fact, has some decent upside potential. It's trading now around $75.75.

Next upside resistance is between $78 and $80, giving 4.3% upside potential.

If that's exceeded, stocks will typically fill in a major gap, such that of Jan. 27 that saw shares drop from $86.78 to $81.43. So $84 is the middle of that range, giving 10.9% upside potential.

After that, next resistance is at $91.75 or so, the point of the Jan. 19 peak, or 21.1% upside potential.

Not shabby at all. Before entering I would like to see some sort of bull signal on the macd, and maybe a return of the moving averages to the normal order, with the 20-day atop the 50-day.

The most recent increases have been on decling volume. A rise on increasing volume would give me more confidence.

Moreover, I would figure that most conceivable bad news has already been priced into the shares. It's hard for expectations to go anywhere but up from here, just as a matter of trader psychology.

All in all, not an unreasonable bull play.

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