AUTO PARTS LEAD CYCLICALS HIGHER -- LEADERS INCLUDE BORGWARNER, MAGNA INTL, AND TENNOCO AUTOMOTIVE -- USED CAR DEALER CARMAX ALSO COMPLETES BASING PATTERN -- IT MIGHT NOT BE A BAD IDEA TO BUY SOME AUTO STOCKS FOR CHRISTMAS
AUTO PARTS INDEX TURNS UP... My message from last Thursday was headlined: "Autos Drive Cyclicals Higher". It showed an index of auto stocks achieving a bullish breakout led by GM and Ford. Auto parts are today's cyclical leaders. That shouldn't be surprising since they're both tracking the same industry which is benefiting from the recent rotation into economically-sensitive parts of the stock market that had previously been largely ignored. Not anymore. Chart 1 shows the Dow Jones US Automobiles & Parts Index trading at a new eight-month high today. It's nearing a challenge of its April high which is likely to be exceeded. The index recently broke through a falling trendline extending to mid-2015. Its relative strength ratio (top of chart) is turning up as well.
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Chart 1
BORGWARNER, MAGNA INTL, AND TENNECO AUTOMOTIVE TURN UP ... Three auto parts leaders are achieving bullish breakouts. Chart 2 shows BorgWarner (BWA) breaking through its April high to reach the highest level for the year. Its relative strength ratio (top of chart) has turned up as well. That looks like a bottom. So does Chart 3 which shows Magna International (MGA) hitting a new 52-week high. Its relative strength line is close to doing the same. Chart 4 shows Tennoco Automotive (TEN) with an even stronger chart pattern. That auto parts leader is trading at the highest level in two years with a rising relative strength line. Auto stocks are right behind auto parts today as cyclical leaders (led mostly by foreign autos). That's a pretty strong sign that stocks related to autos are attracting a lot of new interest and money. That includes used car retailers as well.
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Chart 2
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Chart 3
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Chart 4
CARMAX IS ALSO BOTTOMING... Carmax (KMX) is the nation's largest retailer of used cars. And its chart pattern looks bullish as well. Chart 5 shows KMX trading over 61 today for the first time in more than a year. That completes a basing pattern that's been forming since the start of the year. Its relative strength ratio (top of chart) appears to be bottoming as well. I've been struck by the large number of Christmas ads on TV for new and used cars. Buying a car for Christmas sounds like a nice idea. So does the idea of buying some auto-related stocks.
