AUTOS LEAD CYCLICALS HIGHER -- AUTO LEADERS ARE GM, FORD, AND TESLA -- GENERAL MOTORS NEARS NEW RECORD -- CARMAX COMPLETES MAJOR BASING PATTERN -- TENNECO AUTOMOTIVE LEADS AUTO PARTS STOCKS HIGHER AFTER REACHING TWO-YEAR HIGH
DOW JONES AUTO INDEX IS BREAKING OUT... For the first time in a long time, auto stocks are showing market leadership. I first wrote about the group in a December 1 message about autos leading consumer cyclicals higher. They're doing that again today. Chart 1 shows the Dow Jones US Automobile Index ($DJUSAU) on the verge of breaking through its spring 2016 high (flat line). Back in December, it rose above a falling trendline extending back more than two years (red line). An upside breakout (which appears likely) would confirm that auto stocks have bottomed. Autos have been market underperformers for years. That may be changing for the better. Chart 2 plots a relative strength ratio of the Dow Jones Auto Index divided by the S&P 500 for the last year. The last bar to the far right shows the autos/SPX ratio surging to the highest level in six months. Its longer range chart also shows a group whose RS line is in area of major support and starting to turn higher.
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Chart 1
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Chart 2
AUTO RELATIVE STRENGTH RATIO IS TURNING UP... Chart 3 plots the same auto/SPX ratio over the last ten years. So this is a measure of how the autos have done relative to the S&P 500. The falling ratio starting in early 2011 and again in late 2013 shows autos doing much worse than the rest of the market. Notice, however, that auto RS line is turning up from the same level it did in mid 2012. In other words, the autos' relative strength line is starting to bounce from a major support level. In addition, the ratio's 14-week RSI line (bottom of chart) has risen to the highest level in more than three years. All of which supports the idea that auto stocks appear to be ending their long period of weak performance, and may start exerting market leadership for the first time in years.
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Chart 3
GM NEARS NEW RECORD -- FORD AND TESLA ALSO SURGE... That same December 1 message showed that General Motors (GM) had the strongest chart pattern in that group. It still does. Chart 4 shows General Motors trading 4% higher today and on the verge of a new record. The GM/SPX ratio (gray line) is turning up as well. Chart 5 shows Ford (F) gapping 4% higher. Ford is trading well above its 200-day moving average. Its relative strength ratio (gray line) is jumping as well. Chart 6 shows Tesla Motors (TSLA) trading at a new five-month high after clearing its 200-day moving average. The stock rose above a falling trendline during December which signalled the end of its 2016 downtrend. Its relative strength ratio (gray line) has also been rising since the start of December. With investors entering the new year in a more optimistic mood, they appear to be shopping for undervalued cyclical stocks that should do better in a stronger economy. Auto-related stocks should fill that bill.
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Chart 4
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Chart 5
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Chart 6
CARMAX IN NEW UPTREND -- TENNECO AUTOMOTIVE HITS TWO-YEAR HIGH... My December 7 message followed up on the auto theme by showing the nation's leading used car dealer completing a major basing pattern. Chart 7 shows Carmax (KMX) trading at the highest level in eighteen months after completing a bullish breakout in December (see circle). Its relative strength ratio (gray line) has broken out as well. I also showed auto part stocks like BorgWarner (BWA) and Magna International (MGA) hitting new 52-week highs. Tenneco Automotive (TEN) had an even stronger chart pattern. And it still does. Chart 8 shows Tenneco breaking out to a new two-year high during December. A modest pullback since then is bouncing off a support line drawn along its mid-2015 peak (see arrows). It looks like investors are buying any stocks tied to the auto industry. That's a positive sign for the stock market and the economy.
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Chart 7
