Gains of 74.35% and 43.43% this year for shares of Advance Auto Parts, Inc. (AAP) and O'Reilly Automotive, Inc. (ORLY) tell the story of unusual bullish trading activity accompanying the moves. The main criteria we look for when betting on upside in a stock are improving fundamentals, leading technicals and bullish trading activity in the shares. I'll go into the fundamental picture later, but the true tell on the near-term trajectory of the stock lies in the trading activity.

In 2018, Advance Auto Parts and O'Reilly Automotive shares have increased in price alongside large increases in volume. This can be indicative of smart money accumulating shares. The bottom line here is that the manner in which a stock trades can oftentimes alert you to the forward fundamental picture more so than simply looking at a company's financials alone.

For Mapsignals, the strongest indicator of positive price momentum is obtained by measuring potential institutional buying in the shares. This year, each of these stocks saw rare buying signals (see charts). We like to see continual bullish activity in the shares alongside solid forward fundamentals. This indicates that demand for the stock should increase over time.

In the chart below, Advance Auto Parts stock broke out to new 52-week highs. The shares are seeing demand and should see higher levels:

Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized, unusual institutional trading activity. By studying these data points, we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these for Advance Auto Parts and O'Reilly Automotive are as follows:

  • Year-to-date (YTD) outperformance vs. SPDR S&P 500 ETF (SPY): +71.8% and +40.88%, respectively
  • YTD outperformance vs. Consumer Discretionary Select Sector SPDR ETF (XLY): +65.87% and +34.95%, respectively
  • Bullish unusual trading signals

Just to show you graphically what our unusual trading activity signal looks like, have a look at all of the UI signals made by Advance Auto Parts over the past year:

Chart showing the accumulation signals made by Advance Auto Parts, Inc. (AAP) stock

Now, you can also see the same potential buying signals happening in O'Reilly Automotive shares:

Chart showing the accumulation signals made by O'Reilly Automotive, Inc. (ORLY) stock

On top of a great technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Advance Auto Parts and O'Reilly Automotive continue to grow:

  • Q3 2018 year-over-year (YoY) comparable sales growth rate: +4.6% and +3.9%, respectively
  • Q3 2018 YoY diluted EPS growth rate: +20% and +40%, respectively

Advance Auto Parts and O'Reilly Automotive are outperforming technically and have histories of strong fundamentals while showing bullish institutional momentum in 2018. We believe that the current levels for the shares are in position for further upside. All of this points to further long-term bullish action for the stocks.

The Bottom Line

Advance Auto Parts and O'Reilly Automotive represent potential buying opportunities for the long-term investor. Given the revenue growth, EPS growth and multiple unusual accumulation signals, these stocks could be worth a spot in a growth-oriented portfolio.

To learn more about Mapsignals' institutional signals, please visit our "About Us" page.

Disclosure: The author holds no positions in Advance Auto Parts or O'Reilly Automotive shares at the time of publication.