Take Profits on Auto Sector Strength

NEW YORK (TheStreet) -- Last week the auto industry reported that June auto sales came in at the fastest pace in six years. Between July 23 and Aug. 9 the 10 auto makers I profile today report their quarterly earnings. The key will be the revenue line and forward guidance to judge whether or not the sales gains can be sustained.

On July 2 when I wrote, Sector Ratings Set Asset Allocations, I gave the autos-tires-trucks sector an 'avoid-source of funds' asset allocation rating. Today, following benchmark revisions to ValuEngine data, the autos-tires-trucks sector consists of 94 stocks with only two rated buy. The number of sell-rated stocks declined to 31 from 67 which justifies an asset allocation upgrade to underweight. This assessment still justifies profit-taking on strength in the sector. Seven of the autos I profile today are rated hold, while the other three are rated sell.

Higher U.S. Treasury yields should have a negative effect on auto and truck sales as rates on auto loan rates rise. Auto loan default rates have been inching up recently, which could become a drag on auto sales in the second half of 2013.

An interesting observation among these stocks is the different price patterns among the American auto companies compared with European and the Japanese stocks. Ford Motor ( F) set a multi-year high on Friday with General Motors ( GM) close behind. Some of the European based manufacturers peaked in the first half of 2013; others peaked in early June. Meanwhile the Japanese auto makers peaked with the major U.S. equity averages around May 22.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength.

Daimler ( DDAIF) ($61.66) set its 2013 high at $64.79 on May 20 then traded down to $56.67 on June 21. The 200-day SMA is $55.32 with my weekly risky level at $66.18.

Ford ($16.70) set a new multi-year high at $16.74 on July 5. The 50-day SMA is $14.98 with a monthly pivot at $16.27 and weekly risky level at $17.12. In January 2011 Ford traded as high as $18.97 before tumbling to as low as $8.82 on August 2, 2012.

Fiat ( FIATY) ($6.96) set its 2013 high at $8.39 on June 3 and ended last week just below its 50-day SMA at $7.04. The 200-day SMA is $5.80 with a monthly pivot at $7.14 and weekly risky level at $8.14.

General Motors ($34.67) set its 2013 high at $35.49 on June 4 then traded down to $31.13 on June 24. The 50-day SMA is $32.94 with a semiannual pivot at $34.41 and weekly risky level at $36.22.

Honda ( HMC) ($38.34) set its 2013 high at $42.13 on May 22 then traded down to $35.15 on June 24. Honda is trading between its 200-day SMA is $36.26 and its 50-day SMA at $38.69. My weekly value level is $35.70 with an annual pivot at $40.79 and an annual risky level at $41.93. As you can see, Honda's volatile ride failed just above my annual levels on May 22, matching the highs for the major averages.

Nissan ( NSANY) ($21.00) set its 2013 high at $24.15 on May 21 then traded down to $19.85 on June 24. Nissan is trading between its 200-day SMA is $19.64 and its 50-day SMA at $21.39. My quarterly value level is $17.12 with a weekly pivot at $21.80 and monthly risky level at $23.69.

Toyota ( TM) ($125.27) set its 2013 high at $130.99 on May 22 then traded down to $112.28 on June 6. The 50-day SMA is $120.18 with my weekly value level at $121.07 and monthly risky level at $134.78.

Tesla ( TSLA) ($120.09) has become a spec stock for momentum traders setting its 2013 high at $121.89 on July 2. My monthly value level is $92.84 with a weekly risky level at $131.19.

Volkswagen ( VLKAY) ($39.18) set its 2013 high at $47.77 on Feb. 2, then traded down to $34.30 on April 18. The auto maker is below its 50-day and 200-day SMAs at $40.48 and $39.98. My quarterly value level is $31.30 with a weekly risky level at $42.22.

Volvo ( VOLVY) ($13.02) set its 2013 high at $15.82 on March 15 then traded as low as $12.86 on June 24. My quarterly value level is $8.21 with a weekly pivot at $13.77 and monthly risky level at $14.86. The stock is below its 50-day and 200-day SMAs at $14.17 and $14.25.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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