The COVID-19 pandemic has hurt the auto industry tremendously as consumer demand for vehicles has collapsed in the face of enforced lockdowns in China, Europe and now the United States. The industry is fighting back with efforts to jump-start production and sales globally, as countries such as China have begun opening factories.
Tesla (TSLA) is at the forefront after shipping a record 10,160 Model 3 sedans from its Shanghai plant in March. The company also announced plans today to offer their higher-end Model 3 autos in China for only 13% above the cost of their basic version. All this news has analysts raising their price targets for TSLA to as high as $684, which is 19% above Thursday's close in price.
Tesla has been a clear outperformer during the markets' sharp drop into bear market territory, as the stock was one of only 5% of companies that found support at their 200-day moving average. This bullish action has been followed up by a break back above its 10-day moving average, while the RSI and Stochastics are in positive territory. The next area of possible upside resistance is its 50-day moving average, which is 13% away.
DAILY CHART OF TESLA, INC. (TSLA)
For the Detroit automakers and their suppliers, the shutdown of profitable truck and sport utility vehicle plants in North America has choked off cash flow. This has companies such as General Motors (GM) pushing to reopen U.S. production as early as the first week in May.
General Motors (GM), along with other auto manufacturers, has launched the production of ventilators in their U.S. plants, which has allowed them to fine-tune health safety measures in anticipation of re-opening on a wider scale that will include auto production.
As you can see in the chart below, GM was already in a declining mode prior to experiencing losses of 40% over the last 2 months. The sharp drop positioned the stock to rally along with other beaten-down areas, and its 50-day moving average is the next area of possible upside resistance.
DAILY CHART OF GENERAL MOTORS, CO. (GM)
Unlike other car makers, Ferrari (RACE) has been relatively unscathed financially by the coronavirus downturn, as the company's significant earnings growth over the past several years has kept them well-positioned.
More importantly, the company has confirmed that demand remains solid, with no pandemic-related order cancelations for their luxury vehicles that command prices ranging from $200k to $300k. The fact that they receive payments in advance of delivery has allowed the company to continue to book sales.
Ferrari is now poised to break back above its 200-day moving average, which is 2% away; that would put the stock in a bullish position to trade back to its pre-bear market highs. While a weekly chart of the stock looks more constructive, as it smooths out the daily volatility, it's important to be aware of the high price swings possible with RACE.
DAILY CHART OF FERRARI NV (RACE)
While the stocks mentioned above are in constructive positions from which to trade higher, based on my work, caution is still warranted particularly as we head into the beginning of earnings season next week. And, although the markets appear to be firming up, high daily price swings, such as last Monday's 7% rally as well as headline sensitivity, imply an uncertainty among investors that may well take more time to resolve.
For those who'd like to be alerted to near-term opportunities in top growth stocks, as well as guidance on when the markets have signaled a new - much longer - bull uptrend, I urge you to take a 4-week trial of my bi-weekly MEM Edge Report at a nominal fee. In addition to stock ideas, you'll receive insights into the broader markets and select sectors that are not found elsewhere.
I hope you'll take advantage of this offer and, more importantly, that you are staying healthy and safe.
Erin Swenlin from DecionPoint.com and I will be hosting a Live Trading Room next Tuesday morning. This free event is open to all as we'll be highlighting trading opportunities in this highly volatile period. You can register by clicking this link here!
Mary Ellen McGonagle