Mattel May Not Be Swell as Base Pattern Continues

For his Executive Decision segment of "Mad Money" last Friday, Jim Cramer spoke with Ynon Kreiz, president and CEO of Mattel Inc. (MAT) , the toymaker that delivered an  earnings beat yet saw its shares fall 3.1% by the close of trading Friday.

Kreiz said 2019 was a big year for Mattel's turnaround efforts, with Mattel growing revenue in every region. Kreiz was excited for the company's entertainment tie-ins. He said Barbie continues to be a leading brand for Mattel and he's excited about the future for American Girl, another brand with a great heritage.

Turning to the topic of China, Kreiz said Mattel has a team of experts in the region that is working hard to minimize disruptions.

Let's turn to the charts and indicators for Mattel.

In this daily bar chart of MAT, below, we can see that prices made what looked like a strong base formation by the end of December, but the indicators weakened into January and February. Prices stayed above the rising 50-day moving average line but prices tested that line on Friday. The trading volume looks like it increased in February as prices stalled and the daily On-Balance-Volume (OBV) line moved lower in February, telling us that traders of MAT had turned into aggressive sellers. The 12-day price momentum study in the lower panel shows a pattern of weakening momentum readings or lower highs. When compared to the price action we have a bearish divergence, which suggests a weakening pattern as the rally slows. A bearish divergence is a leading indicator that sometimes forecasts reversals.

In this weekly bar chart of MAT, below, we can see that prices declined and began to make a base formation about a year ago. With the recent price weakness it looks like the base will continue to form and get larger. Prices are above the slightly rising 40-week moving average line. The weekly OBV line has turned to the downside and the Moving Average Convergence Divergence (MACD) oscillator has begun to narrow toward a possible or potential take-profits sell signal.

In this Point and Figure chart of MAT, below, we can see that prices failed to break above $14.71 four times. A turn lower should not be a surprise. A trade at $13.86 should start to weaken this chart.

Bottom line strategy: In the short run MAT could decline to the $12.50-$12.00 area, but in the bigger picture the stock will be making a bigger base pattern. Stand aside for now.

Employees of TheStreet are prohibited from trading individual securities.