Toyota could be forming a bottom

Toyota, the largest automotive manufacturer in the world, has been cut down to size over the past few weeks. For a company that seemed to be unable to do anything wrong for the past 30 years to appear suddenly seemingly unable to do anything right, must be a humbling experience. Lee Iacocca and a whole lot of people in Detroit must be grinning with an unbelievable schadenfreude about Toyota's comeuppance. Before writing out this episode, let's examine whether there is an investment opportunity in this event.

Before we look at the chart, we must bear in mind that the Toyota recall story actually started on January 21, a floor mat recall. This was followed by the pedal recall one week later. Toyota problem first appeared in November last year, according to a report in LATimes. To wit:

Moving to correct what federal regulators have termed a "very dangerous problem," Toyota Motor Corp. said it would modify and replace gas pedals on 4.26 million cars and trucks to reduce the vehicles' risk of accelerating out of control.

Toyota said the measures were designed to prevent floor mats from jamming the accelerator pedal open. As an additional precaution, the Japanese automaker said most of its cars would be modified so that the brake overrides the accelerator if both pedals are pressed at the same time.

The action follows widespread reports of runaway Toyota and Lexus vehicles, including an Aug. 28 crash near San Diego that killed a California Highway Patrol officer and three family members. Sudden acceleration incidents involving Toyota-made cars and trucks have claimed 19 lives since the 2002 model year, The Times has reported, which federal officials say is more than all other manufacturers combined.

via, LATimes.

I have appended below Toyota's monthly, weekly & daily charts. The following can be observed:
1) The monthly chart (the top chart) shows that Toyota is in a downtrend since late 2006. The downtrend line resistance is at Y4000.
2) The weekly chart (the middle chart) shows that Toyota rebounded off its low of about Y2600 recorded in December 2008. Since the December 2008 low, Toyota has been rising in a medium-term uptrend line, with support at Y3500. In the past 3 weeks, Toyota broke below this uptrend line support to reach a low of Y3200 in early February. Since April 2009 until today, Toyota appears to be trapped in an expanding triangle, with support at Y3150-3200 & resistance at Y4300.
3) Since making the low of Y3200, Toyota seems to be forming a bottom (see the daily chart at the bottom). The current fresh weakness in the share price is building up to a test of the low, on thin volume. With or without a test of the low, a recovery above Y3500 (the reaction high in mid-February & the medium-term uptrend line support) could signal the end of the selldown in Toyota.


Chart: Toyota's monthly, weekly & daily chart as at 19/2/2010 (Source: Tokyo Stock Exchange)

From the technical angle, Toyota could be a trading BUY (even a long-term BUY) if the share price recovered above Y3500. It is currently trading at Y3340 (go here for its latest price).