Many auto part store stocks have been rallying strongly over the past year and have continued to absorb any selling. In fact, stocks like O'Reilly Automotive (Nasdaq: ORLY), Advance Auto Parts (NYSE:AAP) and AutoZone (NYSE:AZO) are trading at all-time highs. There are a lot of fundamental catalysts for this trend, including the school of thought that consumers are hanging on to their cars rather than purchasing new ones. This could lead to an increase in demand for parts as older vehicles begin to suffer malfunctions.
With the auto parts stores doing so well, it stands to reason that auto part makers stand to benefit as well. This appears to be the case: while many of these stocks are not at all-time highs, they have been performing very well and outperforming the general markets.
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While I mentioned that most of the auto part stocks were not at all-time highs, Dorman Products (Nasdaq:DORM) is an exception. DORM just tagged all-time highs this week and is attempting to break out of a base it has been building since last April. DORM surged into the $26 level earlier this year before settling into a correction. The selling began to accelerate into the summer months, but DORM found strong support near $18 and rallied back into its base. The $26 level was pretty stiff resistance on the first attempt, so traders need to watch this level to see if the bulls can overcome this resistance area the next time around.
BorgWarner (NYSE:BWA) is another auto part stock that has been performing well recently. BWA cleared an important resistance near $44 in mid July and was flagging near this level for a few weeks. Despite a dip below this level, BWA found buyers and managed to trade to new highs in September. BWA has settled into a pattern of higher highs and higher lows and could make a run toward its all-time highs in the $50s with a little cooperation from the markets.
Fuel Systems Solutions (Nasdaq:FSYS) is an auto part stock that had been underperforming for much of the year until recently beginning to move higher. FSYS recently cleared an important resistance level near $34 and has been flagging as it consolidates the breakout. While the flag alternated above and below the $34 level, the price action was healthy and FSYS is trying to emerge from the consolidation. A move above the flag would confirm the breakout and be a positive sign for the bulls. (For more, see Support & Resistance Basics.)
Commercial Vehicle Group (Nasdaq:CVGI) is one auto part stock that remains in a consolidation without any real breakout attempts so far. However, CVGI was a very strong performer earlier this year and is close to the top of its established range. CVGI could gain some traction if it clears its channel; the first level to watch will be near $10.60.
Auto parts stocks have been one of the strongest groups over the past several months and there are no real signs of this trend slowing down yet. Traders often get caught up chasing more prominent sectors like the semiconductors or financials, but better performance often exists in niche markets. Paying attention to performance across the different sectors will often reveal a bull market, despite underperformance in the general markets. The auto part stocks should definitely remain on a trader's radar and could continue this move with any follow-through in the general markets.
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The author does not hold a position in any of the companies mentioned above at the time of this writing.