Harley-Davidson Stock Nears Breakdown After Trump Tweet

Harley-Davidson, Inc. (HOG) shares have fallen nearly 4% this week after President Trump tweeted his support for a nationwide boycott following the motorcycle maker's decision to shift some production out of the United States to avoid up to $100 million in 2019 European Union tariff surcharges. The decline has set up a key test at 2018 support that, if broken, will drop the stock to a multi-year low. 

The decision to avoid tariff costs will improve a deteriorating balance sheet following three years of declining U.S. sales, underpinned by millennial distaste for the fast and loud American motor machines. The company is caught between a rock and the hard place after the president's threat because it has a fiduciary duty to act in shareholders' best interests and will likely face lawsuits if it cedes to Trump's demands and acts politically rather than financially. (See also: The Trump, Harley-Davidson Feud Explained.)

HOG Long-Term Chart (1990 – 2018)

A multi-year decline ended at a split-adjusted 84 cents in 1990, giving way to a powerful trend advance that gained ground into April 2000, when buying momentum slowed in the mid-$40s. The stock posted modestly higher highs into early 2002, reversing at $57.25 and entering an intermediate correction that found support in the mid-$30s in the second quarter of 2003. It returned to the prior high in 2004 and broke out, posting limited gains into November 2006's all-time high at $75.87.

A pullback accelerated during the 2008 economic collapse, finding support at a 12-year low in the single digits, ahead of a sturdy bounce that persisted into the start of the new decade. A slow-motion uptick then took control, adding points into May 2014, when the rally ended less than two points under the 2006 high. That marked the highest high in the past four years, ahead of a major downtrend that cut the stock price in half into the first quarter of 2016

Harmonic support at the 50% retracement of the post-bear market bounce ended the decline, giving way to a proportional recovery wave that stalled near the midpoint of the prior downturn in the second quarter of 2017. Price action since that time has unfolded through a series of selling waves that have dropped price into the 200-month exponential moving average (EMA), with a breakdown setting up a major test at the 2016 low. (For more, see: Harley-Davidson Focuses on Millennials.)

HOG Short-Term Chart (2016 – 2018)

The stock has carved a shallow uptick since May, reversing twice at 200-day EMA resistance. Relative lows have generated a rising trendline (red line) with support near $41. The odds for a breakdown are evenly weighted between bulls and bears at this time because, despite adverse technical positioning, the monthly stochastics oscillator has crossed into a buy cycle at the oversold level, predicting that bulls will hold support at least until the fourth quarter.

On-balance volume (OBV) paints a bearish picture, with an accumulation phase topping out between 2010 and 2012, ahead of multi-year distribution wave that has posted a long series of lower highs and lower lows. More ominously, the indicator has now entered a test of the 2016 low, predicting that price will soon follow. This institutional abandonment during a roaring bull market exposes Harley-Davidson to a secular decline that could eventually reach last decade's low.

The 2016 low at $36.36 will mark the bulls' line in the sand if support at $41 breaks, with a bounce carving a potential double bottom reversal, ahead of more constructive price action. However, the forces of gravity are increasing rapidly, lowering the odds that the stock will find committed buyers at that level. As a result, it makes sense for interested buyers to stand aside and watch that test unfold before taking new positions. (See also: Harley-Davidson Enters Bearish Territory After Tariff.)

The Bottom Line

Harley-Davidson is engaged in a major downtrend that could soon test 2016 support in the mid-$30s. (For additional reading, check out: Top Mutual Fund Holders of Harley-Davidson.)

<Disclosure: The author held no positions in aforementioned securities at the time of publication.>