A Fresh Look At Auto Part Stocks

We took a look at the auto part stocks back in February and noted how they were stalling out and could be either faltering or beginning to correct. While this group was in fact tired, it has held up quite well as it transitioned to more of a sideways correction. Many traders associate the word correction with lower prices, but there are times where a stock will correct through time as it works off excess bullishness. The auto part stocks have fallen somewhere in between with a pullback from recent highs, but also pretty solid respect of support levels underneath.

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Advance Auto Parts (NYSE:AAP), for example, backed off from new highs late in 2010 and suffered a sharp decline toward the $60 level. It started to stabilize in this area before pulling back again in late February. However, the $60 level brought back buyers and is now forming the bottom of a larger base. AAP has now started to trade back above its 20- and 50-day moving averages as it hovers in the middle of its base. While AAP may not quite be ready to break out, the overall picture is starting to become more positive.

Source: StockCharts.com

AutoZone (NYSE:AZO ) is another stock that appears to have managed staving off a deeper correction. AZO also took a big blow after hitting new highs late in 2010. It failed miserably, dropping toward the $250 level in January and hovering at support for weeks. After a brief shakeout later in the month, AZO stabilized and attempted to move back higher. It didn’t last long as AZO pulled back toward the $250 level. This time buyers rushed in and pushed AZO back higher. AZO is now pretty close to the late 2010 highs and could be close to a breakout. (For further reading, check out AutoZone Not Sputtering.)

Source: StockCharts.com

Following the same pattern, Stoneridge (NYSE:SRI ) has been trading sideways for months as it corrects the rally that occurred through the second half of 2010. Things were looking tenuous in early February as SRI dropped under its 50-day moving average and hit new lows, but buyers defended the $14.25 area. Buyers continued to defend this area and SRI is now testing the top of the ascending triangle that has formed throughout the consolidation. A close above $16 could signal an end to the current consolidation.

Source: StockCharts.com

Tenneco Common Stock (NYSE:TEN ) also looked tenuous at best in early February as it entered a freefall on high volume. However, it rebounded just as sharply and reclaimed its 50-day moving average a few sessions later. From there it has continued to meander sideways as it narrows in range. TEN is currently at the apex of the triangle pattern it has been forming and should be close to a move in one direction or another.

Source: StockCharts.com

The Bottom Line
While things looked bleak a couple of months ago, time does heal wounds in the stock market. The auto part stocks have taken a much needed break as they consolidate some of the outsized gains from the last two years. The group is not out of the woods yet, but many stocks have now revealed clear support levels for traders to monitor. If these stocks can emerge from the bases they have been building, they could provide a great opportunity for patient traders.

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

By Joey Fundora