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Auto Stocks Break Out After Strong US Sales Report

David Becker
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Auto stocks are beginning to percolate after Chrysler, reported a double-digit jump in May sales. Ford reported a 3% increase, while GM sales rose 13%. Automakers on Tuesday reported higher-than-expected U.S. new car sales of 1.6 million in May, with rising consumer demand underpinning a broader recovery in the U.S. economy, according to the Commerce Department. The auto industry in May recorded its strongest annual sales rate since before the 2008 recession. Industry sales rose 11.3 percent to 1,606,264 vehicles.

The DJ US Auto Index ($DJUSAU) doubled from the July 2012 low to the September 2013 high. A long consolidation followed this big advance as the index traded flat for the next nine months. Overall, the pattern looks like a triangle and a break to the upside would signal a continuation higher. The indicator window shows the MACD Histogram turning positive for the first time since September. This means the MACD line moved above its signal line, which is the nine-period exponential moving average of MACD. A bullish signal line crossover on the weekly chart indicates that momentum is turning up in this key index.

Ford (NYSE:F) is leading the auto group with a breakout in late March and a move above the April high. Overall, Ford surged from July 2012 to October 2013 and then corrected with a falling channel. The channel breakout ended the correction and signaled a continuation higher. Ford stalled after the breakout with a trading range in April, but broke out of this range with a close above the April high last week. The indicator window shows the MACD line moving into positive territory and momentum is clearly bullish. General Motors (NYSE:GM) advanced nearly 100% from the July 2012 low to the December 2013 high. The stock then embarked on a correction with a falling wedge this year. A stock is certainly entitled to a pullback after a strong advance.

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