Is the return to full production also feeding Toyota stock surge?

Talk about testing a price gap. It was just a few days ago that Toyota Motor (ADR: TM) showed signs of a breakout past overhead resistance on the weekly chart, which some believe was based on the 2012 Camry news. Then it filled the early May price gap 84.76 to 84.28 on the weekly chart with a Friday high of 84.90, but fell back.
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For the record, Toyota Motor (ADR: TM) stock did indeed fill the May price gap at first, then proceeded to reverse below it, an ominous sign. However, late on Friday, the stock actually closed higher than its open; but within the price gap. That is significant, because it shows strength in its price dynamics.

As reported here at Torque News, Toyota stock started the entire up-move weeks ago, then broke the early May high of 84 by closing at 84.16. Question at the time was, could it be the breakout to higher highs? And, if so, would it be the result of all the 2012 Camry news on the web, like the TN article by Patrick Rall, The 2012 Toyota Camry leaked in video and pictures ?

Then a few days later, another TN writer, Hawke Fracassa, wrote an article, Toyota bounces back in a big way , about the return of Toyota to full production levels after the tsunami in Japan negatively impacted suppliers.

Well, that makes two significant fundamental events for stock investors to feed on. And those two factors is what I believe had been driving the stock price higher. The technical analysis that I wrote about in an auto sector stock article on Toyota (ADR: TM), Can the 2012 Camry plow Toyota stock above its recent price channel? was merely after the fact.

As a reminder, between the weeks 3/6 and 3/20 there was a definite price gap of 84.76/84.28, which, from a technical perspective, I noted would need to be filled and broken higher to confirm any breakout to the upside.

But I also cautioned TN readers that TM might pause when it fills that gap between 84.76 and 84.28. That is now proven to be true, but based more on general market price dynamics than Toyota fundamentals, which are still intact.

Well, astute stock speculators know that general market forces are often greater in power than fundamental news; as witnessed by the sell-off in Toyota stock on Friday.

The big question now

Now that Toyota stock has officially filled the gap and reversed a bit, then closed within the gap, the question remains: Will Toyota stock plow through the gap the next time the general market gains any strength? After all, the fundamental story has not deteriorated.

Fact is, swing patterns have been the modus operandi of Toyota stock lately, especially on daily charts. In fact, that Friday pullback on the daily chart ended up looking like a bullish bar with a long lower tail on the candle.

For the record, Toyota stock has a knack for gaining momentum for some great profits, which is ideal for short to mid-term traders, also known as swing traders.

Weekly Chart Assessment

Using the weekly chart again for a trend bias evaluation, Toyota Motor Company (ADR: TM) stock still looks like it is clearly trending up well; and that gap fill and reversal, followed by an intraday reversal again upward is simply a step in the action we call price dynamics.

Some, though, are still wondering just how much of Toyota’s overall stock move is directly related to the 2012 Camry news. After all, it is still scheduled for release in the fall; and, by the web hits on the subject, inquiring minds still want to see what it looks like. I think it will fade a bit before new news about the Camry will resurrect the bull effect; but that’s just an opinion. I still prefer price action.

But now we must pay attention to the news about Toyota’s return to pre-tsunami production levels. That in my mind is surely significant, because it pertains to all of Toyota, bit just a single model. With demand for high-efficiency cars being high, though, that only spells profit potential for Toyota.

Bottom line for me as a trader is this: I cannot get the jump on all the news out there, but I can surely see the effect that news has on Toyota stock by tracking the price dynamics. That is precisely why I personally prefer technical analysis to time my trades for Toyota stock, even if I only trade options.

Full Disclosure: At time of publication, Sherosky, creator of the auto sector charts for TN, is neither long or short with the mentioned stocks for futures, though positions can change at any time. None of the information in this article constitutes a recommendation, but an assessment or opinion.

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About the Reporter: After 39 years in the auto industry as a design engineer, Frank Sherosky now trades stocks, futures and writes articles, books and ebooks like, "Perfecting Corporate Character," "Awaken Your Speculator Mind", and "Millennial World Order" via authorfrank.com. He may be contacted here by email: [email protected]

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