Auto sales in the U.S. have really taken flight. While some would say it has a lot to do with lending practices that take on unwarranted risk, we can’t necessarily argue with reported data.
But when you look at whether or not the auto sales can maintain momentum, we have to consider a likely macro environment defined by higher interest rates, a rising U.S. dollar and global deflation. At some point, these conflicting forces must be resolved.
Either the automakers will see their stocks appreciate to match rising sales, or investor sentiment, governed by the macro events above, could keep those equity prices in check.
One argument the bulls are making stems from the fact that automaker stocks are significantly undervalued when compared to the S&P 500 (see chart below). Because the industry is economically sensitive, investors may hold back on bidding shares higher if they believe a recession to be around the corner. Hence, sales generally come to a screeching halt during tough times.
With a technical lens, let’s utilize Profit Scanner’s “Technical Event Lookup” feature to see how the major players are holding up. If the charts appear bullish, we might also be able to conclude that the economy is not yet ready to roll over into another recession.
Automaker Stocks to Watch: Ford Motor Company (F)
In the intermediate-term chart of Ford (F) above, we can see that price has recovered significant ground since touching $11 in early February, crossing back above the important 50-day moving average in the process.
Back on March 1, the system spotted a key technical breakout event where the stock broke out of its “head and shoulders” bullish bottom formation. Once neckline resistance melted away, investors who saw the Profit Scanner signal and got in early witnessed the stock surge from $13.09, at the time of the event, to about $14 per share, which is where profits were recommended to be taken via the target price range (seen above the chart on an event page).
While there may be weakness in the short-term as the stock comes back to test the neckline breakout point, investors of the service can continue to check the intermediate-term view for any timely bearish events that could derail upward momentum.
Automaker Stocks to Watch: General Motors Company (GM)
General Motors (GM) is another big name in the auto industry. The stock is consistent in that shares have been on a gradual slide over the past two years. Having received only bearish event signals during the first two months of the year, things finally began to turn around in early March.
Within the first two days, we got confirmation of a “head and shoulders” bullish bottom breakout, followed by a price climb to the upside through the 50-day moving average back when the stock was trading for $30.15.
The system currently tells us that technical price resistance above won’t be met until $35.42, so the potential for decent gains is compelling in the months to follow.
Automaker Stocks to Watch: Toyota Motor Corp (ADR) (TM)
Toyota (TM) is a Japan-based company engaged in the auto business. Their global brand is well established, so it will be interesting to see if there is additional weakness due to the fact that other industrialized economies around the world have not quite rebounded as robustly as the U.S. following the financial crisis that took place from 2007-2008.
In the intermediate-chart of Toyota above, we can see the same, slow retreat in the price of the stock that we have in the U.S. examples above. However, there is one important difference that leaps off the page.
Toyota shares have not climbed above their 50-day moving average. On March 4, we finally received a bullish event alert known as an “engulfing line,” which is nowhere near as important as major bottoms defined through a reverse “head and shoulders” pattern.
But nonetheless, the engulfing description points to a change in momentum on the candlestick chart view where a recent downtrend reverses course due to intense buying pressure. The range of the bullish bar compared to the bearish one before it is important because it must be larger in the sense that it “engulfs” the entire bearish candlestick. Here’s an example to help illustrate the point.
That said, it does appear that the main automakers are benefiting from some positive investor sentiment lately. Whether it is more of a relief rally in lockstep with the broader market vs. the continuation of a long-term bullish run is yet to be seen.
And yet, with so much uncertainty, it’s nice to know that Profit Scanner continues to work behind the scenes to flag significant technical developments as they impact stock prices going forward.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.
