Stock of the day: Continental

This Wednesday beings a quick analysis of Continental, the German automotive company you may know for its tires. But Continental has much more to offer than tires, and that includes brake systems, interior electronics and tachographs.

The reason we’re mentioning Continental today is that we’re one small step from a sell signal. You can see that CON is in a very healthy downtrend. The price has been dropping continuously since the end of 2021. As it often happens, the drop has small internal upswings, in other words – corrections. What’s interesting here is that those corrections are very technical. CON was able to create three flags (red lines). Two of them, ended with a breakout to the downside which was more than expected. The third one is being formed as we speak.

You may assume that our view is bearish and that this correction is likely to end up with a breakout to the downside as well. Yes, pretty much, but our view will be bearish when the breakout happens, not before. The fact that the price is inside the flag isn’t enough to go short on. According to price action principles, only the breakout of the lower line of the flag will bring a sell signal in this particular case. For now, we wait but chances for a bearish scenario are quite significant.