Shares of these three automotive parts manufacturers have been consolidating in well-defined technical patterns and look like they are prepared for potentially powerful moves higher.
Here's how to trade them, based on the charts.
Shares of BorgWarner (BWA) - Get Report retested long-term support in the $28.50 to $27.50 range in June this year, where the stock formed a double bottom and rallied up to the September high at the $36.25 level. This level proved to be the top end of a horizontal trading channel with pattern support in the $33 area.
This month, BorgWarner stock broke above channel resistance but quickly retested it, and in Monday's session formed a large bullish white candle. Moving average convergence/divergence and the relative strength index are both tracking higher and above their center lines, and the vortex indicator, designed to identify early shifts in trend direction, has made a bullish green-over-red line crossover. The money flow indicators are trending higher, supporting the positive price momentum.
The stock is a buy at its current level using an initial stop under the channel resistance-turned-support line.
The sharp advance and the narrow range consolidation that followed formed a flag pattern, and a break above the flag top projects a target measured by adding the height of the flagpole to the top of the flag, a considerable advance. The momentum indicators are above their center lines and the vortex lines have diverted in a bullish manner, while Chaikin money flow remains in positive territory.
The stock is a long candidate after an upper candle close above flag resistance, using a trailing percentage stop.
The relative strength index and moving average convergence/divergence on this time frame are flat to slightly lower, reflecting the constricted price range near the apex of the pattern. Chaikin money flow is still in positive territory, and the stock has seen buying as large hammer candles formed at the support line of the triangle.
It is impossible to say if the stock will break out or break down at this point, but if the sector is completing a consolidation phase and ready to move higher, a break above the triangle downtrend line would project a return to the 2015 high.
The stock is a buy after an upper candle close above the triangle downtrend line using a trailing percentage stop.
This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.