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Auto Dealerships On Fire
Posted: Jun 24, 2009 16:45 PM by Joey Fundora
Filed Under: 401K,Accounting,Accounting,Active Trading,Alternative Investments,Banking,Bear Market,Brokers,Bull Market,Business,Buzz Words,Buzz Words,Chartered Financial Analyst - CFA,Commodities,Day Trading,Economy,ETFs,ETFs,Financial Theory,Forex,Fundamental Analysis,Futures,Hedge Funds,Index Fund,International Markets,Investing Basics,Investment,Investor Relations,IPOs,IRA,Mutual Funds,Options,Personal Finance,Portfolio Management,Recession,Regulations,Series 24,Series 26,Series 6,Series 63,Series 65,Series 66,Series 7,Short Selling,Stock Analysis,Stock Analysis,Stock Analysis,Stock Analysis,Stock Analysis,Stock Analysis,Stocks,Stocks,Students,Swing Trading,Technical Analysis,Technical Analysis,Underwriting,Venture Capital,Warren Buffett,Young Investors
The auto dealerships group as a whole has really caught me off guard recently. With all the bad news being reported on the Big Three automakers, and with the slumping economy, it was a little surprising to see so many dealership stocks well off their lows. Many dealership stocks have recently reported earnings that were well received by the Street, and subsequently experienced a favorable reaction in the stocks price. The recent reaction to earnings has propelled many of these stocks over resistance levels and the short and intermediate term trends look promising.
Maybe with so many franchise dealerships disappearing, the smaller independent dealers are taking a larger piece of the remaining pie, or perhaps it's that the market for used cars is holding up as consumers avoid making the commitment to a new car. One could even point to the "clunker bill" that recently passed the Senate, which would provide consumers with a minimum trade-in value of $3,500 to $4,500 on their old automobiles as a possible catalyst pushing these stocks higher. While the reasons could be any combination of things, the bottom line is that these stocks have been moving higher recently, and there aren't any real signs of weakness yet. (To read about how to get a good deal on a car, see Wheels Of A Future Fortune.)
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Carmax (NYSE:KMX) for instance, is a good example of an auto dealership stock that recently had a favorable reaction to its earnings report, which came out on Friday. The resulting gap helped KMX clear a broadening wedge pattern it had been building since late March. This breakout also builds on a pattern of higher highs and higher lows established since January. The false breakdown in May appears to have trapped some bears, along with the group selling the recent highs near $14, and short covering could propel prices even further. KMX is now in the process of pulling back to test the prior breakout area and gap support and should find support in this area.
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| Source: StockCharts.com |
America's Car-Mart (Nasdaq:CRMT) is another example of an auto dealership company that had a nice reaction to an earnings report. CRMT traded over 11% higher just yesterday. A couple of weeks earlier, it also cleared a lateral base it had been building since April and had been consolidating in a tight range over the breakout area. The high volume gap yesterday solidifies the $17 area as support. CRMT could be moving into a new trend higher as it moves away from the consolidation area.
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| Source: StockCharts.com |
Copart (Nasdaq:CPRT) is another stock in this group that had a large gap on volume following a positive earnings report. The gap helped propel CPRT over a lateral base it had been building since late March. The 50-day moving average is now trending steadily higher, and should provide support on any pullbacks.
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| Source: StockCharts.com |
Other auto dealership stocks that may be worth tracking include Asbury Automotive Group (NYSE:ABG), Autonation (NYSE:AN), Sonic Automotive (NYSE:SAH) and Group 1 Automotive (NYSE:GPI). While many of these stocks can afford to come in a little and retrace a portion of the recent breakout, the overall trends remain healthy on intermediate time frames. A reversal in the general markets will almost certainly impact these stocks, so the key is to watch and see if they remain above their recent bases. Most of these stocks are trending solidly higher, with their 50-day moving averages rising. While no one can predict whether these stocks will continue to outperform, the benefit of the doubt should usually be given to the prevailing trend.
Do you think these stocks will continue to outperform? Let us know what you think by participating in the Investopedia Simulator.
At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.
By Joey Fundora
Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis.
Filed Under: 401K,Accounting,Accounting,Active Trading,Alternative Investments,Banking,Bear Market,Brokers,Bull Market,Business,Buzz Words,Buzz Words,Chartered Financial Analyst - CFA,Commodities,Day Trading,Economy,ETFs,ETFs,Financial Theory,Forex,Fundamental Analysis,Futures,Hedge Funds,Index Fund,International Markets,Investing Basics,Investment,Investor Relations,IPOs,IRA,Mutual Funds,Options,Personal Finance,Portfolio Management,Recession,Regulations,Series 24,Series 26,Series 6,Series 63,Series 65,Series 66,Series 7,Short Selling,Stock Analysis,Stock Analysis,Stock Analysis,Stock Analysis,Stock Analysis,Stock Analysis,Stocks,Stocks,Students,Swing Trading,Technical Analysis,Technical Analysis,Underwriting,Venture Capital,Warren Buffett,Young Investors
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