TRW Automotive Holdings Corp. is a supplier of automotive systems, modules and components to global automotive original equipment manufacturers and related aftermarkets. The Company’s operations encompass the design, manufacture and sale of active and passive safety related products. Active safety related products principally refer to vehicle dynamic controls (braking and steering), and passive safety related products refer to occupant restraints (airbags and seat belts) and safety electronics (electronic control units and crash and occupant weight sensors). It operates its business along four segments: Chassis Systems, Occupant Safety Systems, Electronics and Automotive Components.
Please take a look at the 1-year chart of TRW (TRW Automotive Holdings Corporation) below with my added notations:
As with most stocks, TRW had a rough ride back in July, August and September. While moving in a mostly large, sideways move from August through January, TRW created a strong resistance at $45 (navy). Late last week, the stock finally broke through that resistance level. In addition, the stock had a huge volume surge (red) on the breakout. Volume usually adds validity to breakouts. TRW should be moving higher from here.
The Tale of the Tape: Now that TRW has broken above $45, the stock should be headed higher and that same $45 level should now act as support on any pullbacks. A long trade could be entered on a pullback to that $45 level with a stop placed below $45. If TRW were to break back below $45, a short trade might be entered instead and the forecast for a move higher would be negated.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT