China Automotive Systems
A stock in the auto and truck parts sector that could be setting up to break out soon is China Automotive Systems (CAAS - Get Report), which engages in the manufacture and sale of power steering systems and other component parts for the automotive industry in the People's Republic of China. This stock has been destroyed by the bears so far in 2011, with shares off by over 60%.
If you take a look at the chart for China Automotive, you'll see that this stock has been destroyed, dropping from its April high of $10.44 a share to its current price of just over $5 a share. That massive slide lower in the stock has now taken it below both its 50-day and 200-day moving averages, which is bearish. That said, the stock has also started to make higher lows in the short-term, which could be signaling a change in the bearish behavior. Shares of CAAS are also approaching a big breakout if the stock can manage to trade and close above some past overhead resistance at $5.43 and it's 50-day moving average of $6.07 a share.
Market players should watch for a breakout trade if CAAS can manage to trade and close above those levels I mentioned above on solid volume. Watch for volume that's tracking in close to or above its three-month average action of 190,000 shares. If this breakout does happen, then this stock could soar to $8 to $9 a share quickly.Related: Cramer's Good-News-in-Trucking Stocks One could be a buyer of this stock on any weakness and anticipate the breakout. I would use a stop just below $5 a share since a drop under that level would snap the recent pattern of higher lows. Another way to play this is to buy strength and buy it once it breaks out over $5.43 and $6.07 a share with volume. This is another heavily shorted stock with around 9.3% of the float sold short by the bears. Any breakout for this stock in the coming days or weeks could easily spark the short-sellers to cover some of their profitable bets and buy the stock back for a big bounce.