AutoNation, Inc. (AN) is multi-brand automobile dealership that provides both new and pre-owned vehicles and associated services. The stock has been below a "death cross" since April 24, 2018, and investors had the opportunity to reduce holdings when the stock tested its 200-day simple moving average (SMA) at $50.10 on June 19. The stock traded as low as $32.87 on Dec. 26, and that day ended as a "key reversal" when the stock closed the session above the Dec. 24 high.
The stock closed Wednesday, Feb. 20, at $39.11, up 9.6% so far in 2019 and up 19% from the low. Despite this strength, the stock is in bear market territory at 24.8% below its June 22 high of $51.99. AutoNation shares tested my value level for February at $37.63 on Feb. 7 and moved above my quarterly pivot at $38.36 on Feb. 15. This targets my risky level for this week at $41.42.
AutoNation reports earnings before the opening bell on Friday, Feb. 22, and analysts expect the auto dealer to post earnings per share of $1.15. The stock appears cheap with a P/E ratio of 8.77 according to Macrotrends. The company missed estimates in its last report released on Oct. 30, fueling the downside to the Christmas low. Wall Street projections show a year-over-year gain in earnings but with lower revenue. A negative wildcard for the auto dealer could be a rise in auto loan defaults.
The daily chart for AutoNation
The daily chart shows that AutoNation has been below a "death cross" since April 24, when the 50-day SMA declined below the 200-day SMA, indicating that lower prices would follow. This tracked the stock to its Dec. 26 low of $32.87. The shares closed that day at $34.36, above the Dec. 24 high of $33.67, confirming a "key reversal." AutoNation stock is now above its 50-day SMA at $36.54 but remains below its 200-day SMA at $42.41.
The stock closed at $35.70 on Dec. 31, which was the input to my proprietary analytics. This resulted in the horizontal lines at $38.36 and $35.53, which are my quarterly pivot and semiannual value level, the latter of which was tested on Jan. 2 as a buying opportunity. My annual risky level is above the chart at $64.62. The close of $38.75 on Jan. 31 resulted in my monthly value level at $37.63. My weekly risky level is at $41.42.
The weekly chart for AutoNation
The weekly chart for AutoNation is positive, with the stock above its five-week modified moving average of $37.89. The stock is below its 200-week SMA, or "reversion to the mean," at $48.91, last tested during the week of June 22, when the average was $51.96. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 66.72 this week, up from 58.63 on Feb. 15.
Trading Strategy: Buy AutoNation shares on weakness to my monthly and annual value levels at $37.63 and $35.53, respectively, and reduce holdings on strength to my weekly risky level at $41.42 and to the 200-day SMA at $42.81. My quarterly pivot at $38.36 remains a magnet.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.