Advance Auto Parts, Inc., through its subsidiaries, engages in the automotive replacement parts, accessories, batteries, and maintenance items 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 the added notations:
AAP had a rough go of things from November into February. Since that low, the stock appears to have formed a double bottom (green) price pattern. The pattern is as simple as it sounds: Bottoming, rallying up to a point, selling back off to a similar bottom, and then rallying back up again.
As with any price pattern, a confirmation of the pattern is needed. AAP would confirm the pattern by breaking up through the $165 resistance (red) that has been created by the double bottom pattern.
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The Tale of the Tape: After trending lower into February, AAP has formed a double bottom price pattern. A long trade could be entered on a break above the $165 resistance with a stop placed under that level.
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