LVMH Moet Hennessy Louis Vuitton (LVMUY) and some other luxury brands have been growing through merger & acquisition (M&A) strategies.
Investment bankers love to throw around consulting buzzwords -- consolidation, synergy and scale -- to sell M&A deals whether it makes sense or not. Details are not available on what LVMH paid for all its recent acquisitions but often M&As fail in time. The acquiring management overpays for the assets, they tend to overestimate "synergy" and cultural differences are underestimated. These problems largely remain dormant during the bull market, but then get exposed when the so-called tide goes out.
Maybe you read about the biggest names in the fashion and luxury space back in November 2020 when a $1.15 billion deal came to light, bringing together Cartier's parent company Richemont, the Chinese e-commerce giant Alibaba Group (BABA) , and the high-fashion retail platform of Farfetch (FTCH) .
What do you think of the chart of Cartier's parent?
In the chart of the ADRs of Compagnie Financiere Richemont S.A. (CFRUY) , below, I can see that prices are now trading below the cresting 40-week moving average line.
The weekly On-Balance-Volume (OBV) line made a lower high in 2023 than in 2022 even though prices made a higher high. This is a large-scale bearish divergence. The Moving Average Convergence Divergence (MACD) is weak and also shows us a bearish divergence.
LVMH completed the purchase of Tiffany in January 2021. In January 2022, LVMH acquired a minority stake in the New York-based label Aimé Leon Dore for an undisclosed sum. More recently Nuti Ivo Group (May 2023), Platinum (April 2023), Platinum Invest Group (April 2023).
Keep these dates in mind when you look at the two charts below.
In the long-term weekly close only chart of LVMUY, below, I can see that the shares are up nearly seven fold from the nadir in 2016. Prices made a high in 2021 and corrected to the downside with the broader market weakness in 2022. The shares soared to a new all-time high in 2023 before breaking down below the 40-week moving average line again.
The trading volume has been more active the past two years. The On-Balance-Volume (OBV) line has turned lower in 2023 telling me that sellers of LVMUY have become more aggressive than buyers.
The trend-following Moving Average Convergence Divergence (MACD) oscillator is almost down to the zero line after a large double top in 2021 and 2023. Take note that its double top is also a major bearish divergence as prices made a higher high but the indicator did not.
In this weekly Point and Figure chart of LVMUY, below, I used a five-box reversal filter. Here the charting software is projecting a downside price target in the $86 area. There is no sense of time on this kind of chart but a decline to $86 would break the 2022 lows and retest levels not seen since 2020.
Bottom-line strategy: Don't let me talk you out of buying that expensive purse or watch or something for your wedding anniversary, but I would keep the three charts (above) in mind as the broader market weakness continues and reports of China's economy slowing get more attention.
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