Advance Auto Parts, Inc., through its subsidiaries, operates as a specialty retailer of automotive replacement parts, accessories, batteries, and maintenance items. It operates stores that offer brand name, original equipment manufacturer, and private label automotive products, including alternators, batteries, belts and hoses, brakes and brake pads, chassis parts, climate control parts, clutches, driveshafts, engines and engine parts, ignition parts, lighting, radiators, starters, spark plugs and wires, steering and alignment parts, transmissions, water pumps, and windshield wiper blades; accessories, such as air fresheners, automotive paint, anti-theft devices, emergency road kits, floor mats, ice scrapers, mirrors, seat and steering wheel covers, and vent shades; chemicals comprising antifreeze, brake and power steering fluid, car washes and waxes, freon, fuel additives, and windshield washer fluid; and oils, transmission fluids, and other automotive petroleum products for domestic and imported cars, vans, sport utility vehicles, and light and heavy duty trucks.
Take a look at the 1-year chart of Advance (NYSE: AAP) below with my added notations:
AAP rallied strongly from its May low up until its early November peak. However, a couple of weeks ago the stock fell off a cliff. Since that drop AAP has been pushing up against the same $165 resistance (red) that had held prior to the July breakout. If the stock can break through that $165 level again, a minimum run up to the $170 level (navy) should occur.
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The Tale of the Tape: AAP has a key level of resistance at $165. A long trade could be entered on a break through that level. However, if you are bearish on the stock, a short trade could be made on any rallies up to $165.
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
Follow me on Twitter: @cmtstockcoach