For the better part of the past six months, shares of auto parts retailer O’Reilly Automotive (ORLY) have consolidated an early 2014 rally, and by so doing have carved out a bullish pattern. Investors and traders should keep a closer eye on ORLY stock, because right now, it’s ripe with opportunity.
The broader market’s V-shaped reversal off the early August lows has turned into yet another bull run, and a good many stocks took this time to push back toward the upper end of multimonth bases. ORLY stock is a good example of this.
When O’Reilly Automotive reported better-than-expected earnings on July 23, it also raised its earnings guidance for fiscal year 2014. Interestingly, ORLY stock dropped a few days ahead of earnings, but rallied 3.5% on the actual results, quickly erasing the selloff.
This was a good sign that investors still were looking to buy dips rather than sell the news).
ORLY Stock Charts
Looking at ORLY stock’s multiyear weekly chart below, note that the ascent has been both steep and orderly. ORLY has risen nearly 700% since the late 2008 lows and was up 50% in 2013 alone. We also can see, however, that in 2012 and early 2013 the stock consolidated and built a big, round base from which it eventually broke higher. This same type of bullish consolidation pattern has once again formed over the past six months or so, and O’Reilly shares appear ready to push higher sooner rather than later.
From a momentum perspective, the relative strength index has mostly tread water over the past six months (considering the consolidation pattern in price), but looks to be slowly curling higher again.
Zooming in on the daily chart, ORLY stock had a significant breakaway gap in February, though after another week or so of follow-through buying, it finally ran out of steam. The dip into late April held the stock above its 100-day simple moving average (blue line), and even the one-day dip below this moving average in July was quickly bought again.
As a result, ORLY stock has since April once again painted its chart with a series of higher lows, all of which is pressuring it against the February highs, and in fact has already marginally pierced above there in recent days.
What’s still missing, however, is a clean breakout move that is visually obvious enough to get this crowd really buying.
Active investors can either wait for such a breakout move to occur or take a partial long position in the stock to be prepared for the move, then add to the position. Once the breakout occurs, ORLY stock should have room into the high $160s over the next couple of months.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
