LKQ Corporation (NASDAQ: LKQ)

LKQ Corporation provides replacement parts, components, and systems needed to repair cars and trucks in the United States, the United Kingdom, the Netherlands, Belgium, Northern France, Canada, Mexico, and Central America. The company operates in three segments: Wholesale North America, Wholesale Europe, and Self Service. It distributes various products, including aftermarket collision and mechanical products; recycled collision and mechanical products; and refurbished collision replacement products, such as wheels, bumper covers and lights, and remanufactured engines. The company also offers recycled products comprising engines, transmissions, door assemblies, and bumper assemblies, as well as sheet metal products, such as trunk lids, fenders, and hoods.

Take a look at the 1-year chart of LKQ (Nasdaq: LKQ) with the added notations:

1-year chart of LKQ (Nasdaq: LKQ)

LKQ has essentially went nowhere over the last 12 months having traded sideways the whole time. And during the last year, the stock has also created a key price level at $25 (red), which has been support every time it has been tested since June. Now that the stock has broken that support, lower prices should follow.

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The Tale of the Tape: LKQ broke a key level of support at $25. A trader could enter a short position on any rallies up to or near $25 with a stop placed above the level. If the stock were to break back above the $25 level, a long position could be entered instead.

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!

Good luck!

Christian Tharp, CMT

Follow me on Twitter: @cmtstockcoach