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Tickers in this Article: AZO, AAP, ORLY, SRI
Participation has been dwindling to fewer and fewer stocks, although the markets continue to hit new highs. While some of this can be attributed to money rotating from group to group, the simple fact is that many stocks are in need of a breather. One group that has been an outstanding performer over the past year is the auto parts sector. Many stocks in this group made it back to all-time highs after the bear market, and outperformed many of the flashier stocks in other groups. (For related reading, see Sector Rotation: The Essentials.) However, it seems like this group is finally getting tired, and many names are starting to come under some pressure. Advance Auto Parts Inc. (NYSE:AAP), for instance, recently failed on a breakout attempt above $68. After the failed breakout, AAP pulled back to its base and slipped under its 20-day moving average. It appeared to be stabilizing until a nasty drop kicked off the New Year. AAP has been attempting to work its way higher since that drop, but the pattern that is forming looks corrective in nature. AAP is approaching the $66 level, which could act as resistance, and may usher in some sellers. If sellers do push it lower, it's quite possible that AAP will head towards its recent low near $60 and possibly lower.

AutoZone (NYSE:AZO) followed a very similar pattern with the failure to hold a breakout above $270 in late December. It dropped towards $250, where it has been trading for over a month. Volume has increased during this consolidation, which is hinting at distribution. Traders should keep an eye on the $250 level to see if it can hold support. (For related reading, see Trade Broken Trendlines Without Going Broke.)

O'Reilly Automotive (Nasdaq:ORLY) is another auto parts stock that is looking quite tired. ORLY cleared a resistance level back in late October near $54, and had a steady run into the $60 range. It backed off those levels in late December before starting to correct more sharply in January. It has now been trading in a tight range between $56-58, and has been unable to make any forward progress. Traders should watch for a break out of this range in either direction, although the current price action is favoring a move to the downside.

Stoneridge (NYSE:SRI) is another stock in this sector that may be headed lower. It had been consolidating near $17 after a breakout in early December before encountering some selling pressure that drove it down to the $15 area. It is now struggling to hold above its 50-day moving average and could be headed for a test of the prior breakout level near $13.

The Bottom Line
While shorting stocks has been a fool's game in this market, weakness is starting to creep in to many different sectors. The auto parts stocks are one such group, and they appear to be taking a much-needed rest after performing so well for so long. More recently, these stocks have been mired in a struggle to move back to their prior bases, and could be setting up for a deeper correction. Traders should keep an eye on these recent trading ranges for a possible trading opportunity.

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