The American Big Three—General Motors, Ford, Chrysler— have followed a steady trend downhill. GM and Ford's stock prices have deflated like a punctured tire. However it looks as if Congress will pump back some air into the Big Three through an emergency rescue package.
Toyota is a different story.
Unlike the U.S. automakers, which show a ski slope trend line, Toyota's ADR chart is dominated by a head and shoulder pattern. These are reliable chart patterns that set achievable downside targets. The weekly chart shows a well developed head and shoulder pattern. The distance between the neckline and the head of the pattern is measured. This value is projected down to set the downside target. Toyota achieved this $55.00 target.
So what next? The answer is provided by the behavior of other stocks and indices which are further advanced in this pattern development. In these market conditions, the head and shoulder pattern targets have been exceeded by around 18 percent. Apply this average to Toyota and it suggests a $45.00 downside target. This potential is further confirmed because the $55.00 level is not an established historical support level.
The common pattern of behavior following this extra dip below the head and shoulder pattern target level is the development of a fast rebound rally. This is then followed by a retracement and another rebound. This activity develops a symmetrical triangle pattern. This is a pattern of indecision. We have indicated on the chart where this pattern could potentially develop.
The symmetrical triangle pattern shows there is still strong selling pressure. This pressure is defined by the down trend line. As the price rises, existing stockholders sell into the market. This selling -- desperately chasing falling prices to capture a small profit -- sets the downtrend line.
The uptrend line is a buyers line. Buyers wait for prices to fall and when the bargain price is irresistible, they re-enter the market as buyers. The up sloping trend line shows some buyers are becoming more optimistic. They are not prepared to let the price fall as low as in the past before they come into the market as buyers. This is a mildly bullish result, so it seems strange to call this combined pattern a pattern of indecision.