VW profits fall, and shares near major resistance point

Volkswagen has reported a drop in first quarter profit as the engine emissions scandal continues to hurt Europe’s largest car maker. The stock is now sitting close to a major resistance line on the technical charts.

Volkswagen, Europe’s largest car maker, continues to suffer the fallout from the engine emissions scandal, with first-quarter net profit falling to €2.37 billion, from €2.93 billion a year earlier.

The German car maker’s core VW brand was worst hit, reporting earnings before interest, taxes and special items of €73 million, down from €514 million a year earlier.

It wasn’t all bad news, and VW is benefitting from its diversified structure with ten automotive brands. Premium brands Porsche and Audi performed well, while mid-range Czech brand Skoda reported that operating profit rose by more than 30%.

Still, the group’s consolidated sales were €50.96 billion, down 3.4% from €52.74 billion a year earlier and missing analysts’ forecasts of €51.74 billion. Vehicle sales declined 1.2% to 2.61 million.  

VW chart

The lower trendline from the long term uptrend channel provided the backstop to the current downtrend in October 2015, with the shares largely consolidating since. The psychologically important €100 level will have played a part. Both are expected to continue acting as support should we see any further downside in the coming months.

In the near term, the 40-week weighted moving average (currently €117.82) would be expected to provide support to any downside. Shares of the world's second largest automobile manufacturer have been gaining ground over the past four months. However, with the downtrend since March 2015 still intact, a major resistance area at €139.40 needs to be overcome to negate this trend.

The price gap that occurred in September 2015 in the throes of the emissions scandal (€154.00 to €142.90) will need to be overcome for a bullish outlook to come into play. This event would be needed for the stock to be largely out of the woods. 

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