The LVMH share price has been in a strong bearish trend in the past few months as concerns about growth continued. It plunged to a low of €564.8, its lowest level since July 2022. It has dropped by over 33% from its highest level this year, moving into a deep bear market.
LVMH share price has formed bearish patterns
There is a risk that the LVMH stock price could have a strong bearish breakout in the coming months. On the weekly chart, a double-top chart pattern was formed at €880. A double-top is made up of twin peaks and a neckline at €650. It is one of the most bearish patterns in the market.
LVMH shares have formed a death cross pattern as the 50-week and 200-week Weighted Moving Averages (WMA) crossed each other. A death cross is an important bearish pattern that leads to a substantial sell-off.
At the same time, the Relative Strength Index (RSI) and the MACD indicator have continued moving downwards.
Therefore, there are rising odds that the LVMH stock price will continue falling as sellers target the key support at €475. This target is estimated by measuring the distance between the upper side of the double-top pattern and the neckline and then extrapolating it from the neckline.
On the flip side, a move above the key resistance level at €650 will invalidate the bearish view. This was a notable level since it was the neckline of the double-top pattern.
LVMH stock chart by TradingView
Growth concerns remain
The main reason for the ongoing LVMH share price implosion is that its business is not doing well because of the weakening Chinese and European economies.
Data released recently showed that the Chinese economy will likely struggle to hit its target 5% growth rate this year. This explains why Beijing has been keen on implementing substantial stimulus in the economy.
The most recent stimulus package was a $1.4 trillion financing that will go to local governments that have struggled after the real estate industry’s collapse.
This stimulus, however, will likely have a limited impact on consumer spending since it is tailored towards public works.
Other top economies, especially in Europe, are not doing well. Recent data showed that Germany has moved into a recession and the mood across the continent is like that.
The most recent financial results showed that LVMH’s business was not doing well as its wines and spirits and watches & jewerly lagged.
Wines and spirits organic sales dropped by 8% in the first nine months of the year and 7% in the third quarter. Similarly, the watches and jewelry division’s revenue fell by 3% in the first nine months. This weakness was offset by a 5% rebound in perfumes and cosmetics and selective retailing.
China has been one of the biggest laggards for the company. The last results showed that the Asian revenue dropped by 16% in the third quarter. The only country where sales jumped was in Japan, but the management warned that sales were moderating. US sales were flat while European ones rose by 2%.
On the positive side, the ongoing LVMH share price crash has left behind a company that is relatively undervalued. It has a trailing twelve-month (TTM) price-to-earnings ratio of 20, lower than the five-year average of over 30.
The other positive is that the company may benefit from the ongoing interest rate cuts in the US and Europe. The Fed has slashed rates by 75 basis points this year, while the European Central Bank has cut three times.
Interest rate cuts may help to supercharge consumer spending in the next few years by lowering the cost of borrowing.
Read more: The end of luxury? Why 50 million shoppers are saying no to high-end brands
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