SubscribeMomentum Stock: Autoliv (ALV)
Autoliv (NYSE:ALV) is the supplier of automotive occupant safety restraint systems with a range of product offerings, including modules and components for passenger and driver-side airbags, side-impact airbag protection systems, seatbelts, steering wheels, safety seats and other safety systems and products. (Source: Bigcharts)
Autoliv is our next great momentum stock play. I came across this security while watching CNBC this morning in an interview with a portfolio manager who looks for gems that are under appreciated in value. Normally after a stock is mentioned CNBC will show the daily charts and then quickly expand the time horizon to see how well the stock has performed over a longer period.
Although I am a firm believer in researching securities on your own, there are times where an idea is placed before you on the table and you can choose to either follow it blindly or dig deeper and determine if it meets your own investment style. I noticed by the looking at the chart that the stock had been trading in a channel for some time and has recently punched through strong resistance to the upside. Usually when this occurs I have reason to believe that the main indicators I follow (MACD & DMI) played a recent and important role in this activity.
Further analysis conducted proved my instincts to be correct…
On the one-year weekly chart below you will notice that the bottom indicator (DMI) turned positive about two months ago. However, it wasn’t until mid November that the MACD finally turned positive to give an absolute buy signal.
So why has the stock been trading sideways over the past few weeks?
The answer here is that once a stock breaks through it is often the case that investors and institutions will push the stock down toward the new level of support in order to establish that the stock has moved higher on good reason and solid foundation. In this case the stock will need to hold above the $58 level in order for me to remain bullish on this play.
Our Recommendation: Buy shares of ALV at or near the current price of $58.27 and place your stop loss at 5% below your purchasing price.
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Comment by Bryan L. on 8 December 2006:
But what about the industry that ALV is in? Did you consider the fact that consumer spending is down and expected to go lower? This usually implies less spending on discretionary goods like vehicles, which drive ALV’s sales.
Comment by Stephen Oakes on 8 December 2006:
Bryan,
Thank you for your comment! Excellent point that you bring up. Your fundamental analysis does and should bring about concern that this industry may see weakness in the near future due to a decline in consumer spending.
The technical setup on ALV is very appealing. If the weakness in the industry does prove to pressure the stock lower there is comfort in knowing that our stop loss is already placed just below major support.
With proper stop losses and a diversified portfolio, we seek to let gainers run and cut losses short. If by chance this play turns out to be sour there will be another opportunity next door. Let’s see what happens…