Channels and Triangles Typify GT on Daily and Weekly

When a corrective pattern in a single stock nears the end of its second decade, one may be forced to conclude that it's no longer a correction but rather the "new normal" for that issue's behavior.  Such is the case with the well-known US tire manufacturer Goodyear Tire and Rubber Company (NASDAQ: GT).  When you step back far enough to view the stock on a monthly chart (not shown in this article,) we see a distinctive long-term double top pattern formed at the all-time highs between May 1993 and March 1998.  The neckline was breached in December 1999, and the target met in February 2003.  Since then, the stock has wandered aimlessly, mostly sideways, only occasionally showing signs that it may attempt to initiate a new impulse wave.  Such attempts are short-lived and price action quickly returns to the lower levels reached in the correction. 

For long-term position traders, there's not much to hold any attention.  Even the 1.3% dividend yield will quickly lose any remaining luster as the Fed continues to raise interest rates.  As a buy-and-hold investment, there are certainly more lucrative income stocks, and the long term investor would be better off with the US Treasury's 10-year bond which is paying nearly double what GT is offering and holds none of the risk associated with the equity giant.

Turning our attention to the weekly chart, however, we start to see some decent potential for the short to intermediate term trader.

GT Weekly Chart

What stands out on the weekly is that two-year long horizontal channel that formed with enough touches of both support and resistance to make it a very strong multi-directional setup.  Given the other signals on the chart, however, this is one we'd prefer to play to the long side.  Since we want to enter long on support, there are multiple trend lines to which we will look for a strong reversal signal.  We're sitting on one of those support lines right now, so a reversal here would be a permissible long entry. 

Notice the orange channel that has appeared in the short term.  That orange support line is a better entry point if price retraces and reverses at that level.  Better still are any of the green lines since they have much greater strength are would offer much better protective stops.  The best entry, if we retrace far enough is that horizontal green line that marks the bottom of the channel.  So if you're a longer term trader with a horizon in the two to three month range, this is your chart and there are numerous possible entry levels depending on your risk tolerance.

I prefer to trade on the daily chart, however, and prefer a horizon that is much shorter, measured in days, not weeks, so let's see what the daily is telling us.

GT Daily Chart

The technical screen that called attention to this chart identifies ascending triangles, and I show that triangle with the bold red resistance and bold green support lines.  Both extremes mark excellent entries for a play in the opposite direction, and on a breach (i.e. a close above resistance or below support on high volume) they make excellent entry points for breakout plays.  As long as volume confirms the move, I wouldn't hesitate to take either, although the protective stop needs to account for the likelihood of a pullback and retest of the line.

Of interest at the moment is the short-term Elliott Wave count.  That the long-term pattern is corrective is largely irrelevant at the moment.  We can see that a 5-wave impulse pattern started at the diagonal support line of the triangle, and it culminated at the horizontal resistance line that marks the top of the triangle.  After bouncing off resistance, an A-B-C zig-zag correction ensued, and may have completed.

Notice the diagonal support line marked in purple.  That line has served as a pivot since May 2016 and has numerous valid touches, including two in the current Wave-c pattern.  A bullish reversal on volume at this point will be a good entry with a price target near the horizontal red resistance line.

The potential for Wave-c to continue further, however, is equally significant.  There is an orange channel drawn, and the support line in that channel originates at the October high.  It's a moderately strong support line, and it intersects the green support line of the triangle on 30 January.  We would not be surprised if that's where the price trends since that's only six trading days distant.  That point would be our ideal entry point for a long position if it manifests.

With no divergence showing on the RSI(9) and On Balance Volume still drifting gradually lower, we see that continued decline into stronger support as a highly probable move. GT reports earnings before the open on 7 February, but it trades ex-dividend on 30 January.  Since we have no short setups appearing on the chart prior to then, I'm not concerned about the dividend.  Just remember that the opening price will be adjusted down by $0.10 on that date.  You don't want to be artificially stopped or entered because of the dividend adjustment.

The way we'll play this is relatively simple.  From where the stock currently sits, we only see a long setup for now.  We'll enter long on a strong bullish reversal with confirming volume.  We'll set our price target at the red horizontal resistance line.  Our protective stop will be just below the lower dotted green support line. We'll look to raise that stop to just below the purple line as soon as we see a move that confirms the upward direction.  Be aware of the orange channel line, but don't stress over it.  A strong impulse wave may pause at that line, but it's not likely to reverse there.  Whether or not we take a short position at resistance or on a breach of support will depend on what the overall price and volume patterns look like at that time.  For now, we'll just concentrate on the next move, and we currently see that as a long position.

Happy Trading.