This week we'll focus on the auto parts industry, as they're the latest to report earnings. Last year, the auto parts stores were a stellar outperforming area of the market and many traders have also noted the relative strength during the end-of-year sell off that seemed to take down every stock in the markets.
The auto parts stores consist of only a few names and all of them enjoyed double digit gains last year. O'Reilly Automotive (NASDAQ: ORLY) is one we will focus in on today. The stock had a 45% gain last year, which may have you thinking that it's overbought, but let's take a closer look.
Most of the gains happened rapidly in the beginning part of last year. Once the summer hit, the stock sat in a tight trading range near highs. Nearly every corner of the market sold off at the end of the year, but ORLY managed to stay near highs in a range.
This week, the stock broke out of that range following an impressive earnings beat. This woke the bulls, who have been waiting for just such a technical reason to buy the stock.
Short-term traders should look to play this breakout momentum to the $380 - $400 area. For investors, this may not be the time to dive all-in, but it does represent a point of starting a position. If the relative strength continues, then one could argue that pullbacks are reasons to add to a longer-term position.