Volkswagen A.G. (Boerse Frankfurt: $VOW; OTCMKTS: $VLKAY) the largest automaker by worldwide sales in 2016 has not only been hit hard by the dieselgate but has not yet taken the turn to reinvent itself. Strategic plans to introduce electric powered vehicles have first been drafted under the spreading threats hanging over diesel vehicles as more and more cities and countries announced their intentions to ban diesel cars. It makes me thing of Kodak confronted to the emergence of the digital photography or Blackberry facing up an incoming iPhone tsunami.
The price chart shows how miserable the company is doing and depicts a very clear (in my humble visual analyst opinion) scenario.
The remarkable spike visible on the yearly time frame and the following bearish engulfing pattern (in terms of japanese candles) are a combination of textbook examples of major selling strength.
Therefore it is “kein Wunder” that the subsequent corrective move ending up as a wedge identified as the wave marked (B) on the yearly price chart failed to overcome the previous engulfing black crow candle.
A similar fractal scenario has occurred on the lower weekly time frame where the minor (a) wave reproduces the major (A) wave on the yearly chart, the (b) wave wedged higher similarly to the failed major (B) wave, and due to the recent break down below the lower weekly trend line it can be expected for the bear trend to resume in a minor (c) wave that should complete the full bear market structure of the VOW stock at point (C), which exact level remains however to be defined.
The trend is now turning lower again as it did exactly two years ago in August 2015, the relative strength (compared to the German DAX Index) is very weak and decreasing, there is a very clear break down below the lower trendline of the corrective wedge, and last but not least there is no significant buying interest as the volumes of exchange are not increasing on the breakdown event.
Taken all together the chart structure prophesize a dismal future for the stock price and I dare to pretend that it should drop sharply in the months ahead.
The suffering is not even close to end for the dethroned automotive leader and its shareholders and we should soon see the emergence of activist investors to defend the fate of the company but primarily their own private interest.
– Sell VOW at the present price of ca. €131.
– Initial stop loss slightly above €140 (agressive and more risky) or slightly above €150 (conservative and safer).
– Target a drop far below €90, not yet defined.
Disclosure: I have no position in the stocks mentioned.