A Higher High Today and a Breakout in the S&P 500

The S&P 500 added over 24 points today and more importantly the index closed in territory to form a higher high.  Higher highs and higher lows are what form an uptrend (for more information on trends see www.StockTradingCards.com).  With today’s close at 1125.88, the S&P 500 took out its previous cyclical high close of 1115.01 and the June high close at 1117.51.  Not only does today’s close make the 500’s chart look more bullish, but it has dragged the 50 day exponential moving average above the 200 day EMA.  You may have been hearing a lot about a ‘Black Cross’ or ‘Death Cross’ in the financial media lately.  These crosses are when the 50 drops below the 200.  With today’s 50 tip toeing above the 200, we get a ‘Golden Cross’ and as its name seems to say, it is money bullish.

The above chart shows today’s close above the light blue line which denotes the highest close in the last two and a half months.  The straight light blue line that runs from the low up the right side of this chart shows the uptrend the market has been in since July 2nd.  The thick blue curved line is the 50 EMA and the dark blue curved line is the 200 with the 50 closing higher today.

In the ridiculously strong stock category we have Autozone Inc. (NYSE: AZO).  If you look at the S&P 500 chart above you see how we had the high for the market in April just a day before the Greek Crisis hit.  On that day AZO was at $184.  The market dropped but AZO kept going adding 15% since and closed today at $211.85.  The chart below illustrates a very nice uptrend channel (for more on uptrend channels see www.StockTradingCards.com) and AZO is trying to break this to the upside.  I would much rather buy this stock on the lower uptrend line but as this line slopes up, the price may be the same as today’s close by the time it gets there.

Autozone Inc. makes replacement parts for cars and their 2010 earnings are estimated to be $14.62 giving a P/E of 14.50.  Looking at the five largest auto parts stores by market cap, (ORLY 19.90, AAP 17.69, PBY 21.82 and PRTS 62.02) shows that the lowest P/E belongs to the largest market cap auto parts store – Autozone.

This stock is well positioned if this recession drags out for a long period of time as people fix cars instead of buying new cars.  AZO looks good technically, is the industry leader and sports a relatively low P/E.  Usually you do not want to buy on the upper trend channel line (also called the ‘return’ or ‘reaction’ line) but if AZO breaks higher this upper line will become support.  Possibly you could buy a little now and average into a position if it returns to the lower line.  Any way you get in, do not be worried about a $200 plus price as this stock is cheap on a P/E basis and is illustrating this through the strength of its chart and price action.

Monday August 2, 2010 - 9 p.m.