The Canadian Technician

Auto Stocks Are Breaking Out Of Bases

The auto sector has been slowly climbing a wall of worry. Donald Trump adding his 140 characters has made everyone look at the auto charts the last few days! But more importantly, the investors are already rolling on these wheels.

First of all, the auto sector was one of the worst performing sectors last year. In a big up year (2016) for the markets, the car guys were not being bought. Here is a look across the worst performing industry groups in the US markets. The Autos were down 4.56% in the '% change' column. Automobile parts (-1.71%) and tires (-5.75%) were also in the "poor performers" industry list in 2016.


So to say the group had a bad year is an understatement. When you are in the bottom 20 out of 186, that is a wreck. But from wreckage comes repair, and that might be playing out now.

Let me show a few Canadian car part companies and then some of the auto companies.

Magna (MG.TO, MG) has broken out above a base, built a consolidation and now looks to be pushing higher. The SCTR broke above 75 in December and stayed there while the price built a flag. If this can get a little more push, we'll see the Relative Strength break out to new 52-week highs for the first time since June 2015. That should encourage some buyers to show up as well.

Martinrea (MRE.TO) is trying to join the party. After trending lower for 18 months, MRE.TO is making new 3-month highs in relative strength, the SCTR has pushed above 75, the volume was picking up in early December before the holidays and the MACD had its first positive cross this week while above zero in a long time!

Linamar (LNR.TO) looks a lot like Magna just breaking out of the base. SCTR pushing back above 75, the RS line broke above to 6 month highs in December, the breakout over the $56 base, and lots of volume in early December showing an enthusiasm towards the stock. 

Bombardier (BBD/B.TO) is also putting on a move! While not directly in automotive, it is a fabrictor of transportation equipment.

Lastly, is the recreational company BRP Inc. (DOO.TO). They are climbing to the level of 2-year highs and only a few dollars away from all time highs since going public. SCTR above 75, new 1-year RS highs, Price is breaking out, and the MACD has turned up while being above zero on a weekly chart. Very bullish behaviour.

So I particularly like when a whole industry or theme starts rocking above the 75 line on the SCTR.

Regarding some of the US Autos, GM has been running for a while and was featured in Don't Ignore This Chart in the last quarter. This looks strong here on a weekly chart.

Ford (F) is tentative, but on GM's lead, this could pop as well. We can see the level on the chart, the RS and an SCTR > 50 all look important.

Good ol' Tesla (TSLA). It bullishly resolved itself from an article in early December 2016. Is Tesla About To Hit The Ditch? With this positive breakout, Tesla appears to be following the group higher.

The market has had a fabulous two day spurt. I am very interested to see if there is any more fuel in the tank of the broad market for now. I wrote a complete set of articles looking at the 2016 Year in Review.

 The articles in order of writing are:

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Lastly, we are planning for a big aggressive year at StockCharts with new initiatives to earn your support in terms of a membership. Last year StockCharts and I jointly received 6 awards from the CSTA. We are thankful for your support and we hope you enjoy the articles from a group who won the Top Technical Analysis Team Award for 2016.

I hope you can join me on my Commodities Countdown Webinar every Thursday at 5 ET. Registration is on the home page of StockCharts.com. I also host a webinar specifically for Canadian markets every second Tuesday at 5 ET. The Canadian Technician Live 2017-01-10 will be the next one. Click on the links to register.

We all know the world ahead will be tumultuous. The Toronto Stock Exchange continues to hover around old highs. As we know, approaching old highs can face four different scenarios. Falling just short, making a top at the same level, climbing just above for a few days or a few weeks, or breaking out. Todays high was 15520 which is the test of the 2015 high at 15525. The next 200 points will take us through old highs.  Successfully holding over the next few weeks is the real big issue. Stay very focused on the outcome. Notice how we tested for about 4 weeks each time and then fell away. Job one for January and February is making and holding new highs.

Good trading,
Greg Schnell, CMT, MFTA

 
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