Charts point to counter-trend buying oportunity in this auto stock, says Katie Stockton
European automotive stocks have been hit hard since over the past eight months, with the STOXX Europe 600 Automobiles & Components Index down roughly 29% since peaking in April. Many of the major automakers in Europe, like Mercedes, BMW, Volkswagen, and Stellantis, are deeply oversold and have support nearby on their charts. This provides a compelling risk/reward opportunity in the space. The common setup in our indicators is reflected on a weekly bar chart of the STOXX Europe 600 Automobiles & Components, which has a counter-trend ‘buy’ signal from the DeMARK Indicators for the first time since late 2018. The signal suggests the corrective move is overdone and indicates an intermediate-term counter-trend upmove is likely in store for European automotive stocks. Monday’s news-driven selloff in Stellantis NV (STLAM IM) drew our attention to its chart, which shows the stock closing in on key support from its 2022 low (€11.15). There is a new counter-trend ‘buy’ signal on the monthly bar chart, which increases the likelihood that a test of support will hold and give way to a relief rally lasting several months. A timely opposing ‘sell’ signal from the same model marked this year’s peak. STLAM IM recently saw its weekly MACD shift to a ‘buy’ signal, showing a meaningful loss of downside momentum from an intermediate-term perspective. There is also an active counter-trend ‘buy’ signal on the weekly chart that increases the chances that today’s gap down is exhaustive. We would be more confident that an important low is in place if STLAM IM can quickly rebound and clear initial resistance from its 10-week moving average, near €12.35. In contrast to STALM IM, the more popular Ferrari NV (RACE IM) has a long-term uptrend in place, strongly outperforming the STOXX Europe 600 Automobiles & Components Index. However, its uptrend is due for a prolonged consolidation phase per the DeMARK Indicators and the monthly stochastics, which are turning lower from overbought territory. The monthly MACD histogram has been ticking lower for several months to suggest momentum behind the uptrend is weakening. The setup suggests that the laggards in the industry, like STLAM IM, could see a phase of outperformance while RACE IM corrects and relinquishes its leadership stronghold. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer. Fairlead Strategies Disclaimer: This communication has been prepared by Fairlead Strategies LLC (“Fairlead Strategies”) for informational purposes only. This material is for illustration and discussion purposes and not intended to be, nor construed as, financial, legal, tax or investment advice. You should consult appropriate advisors concerning such matters. This material presents information through the date indicated, reflecting the author’s current expectations, and is subject to revision by the author, though the author is under no obligation to do so. This material may contain commentary on broad-based indices, market conditions, different types of securities, and cryptocurrencies, using the discipline of technical analysis, which evaluates the demand and supply based on market pricing. The views expressed herein are solely those of the author. This material should not be construed as a recommendation, or advice or an offer or solicitation with respect to the purchase or sale of any investment. The information is not intended to provide a basis on which you could make an investment decision on any particular security or its issuer. This document is intended for CNBC Pro subscribers only and is not for distribution to the general public. Certain information has been provided by and/or is based on third party sources and, although such information is believed to be reliable, no representation is made with respect to the accuracy, completeness, or timeliness of such information. This information may be subject to change without notice. Fairlead Strategies undertakes no obligation to maintain or update this material based on subsequent information and events or to provide you with any additional or supplemental information or any update to or correction of the information contained herein. Fairlead Strategies, its officers, employees, affiliates and partners shall not be liable to any person in any way whatsoever for any losses, costs, or claims for your reliance on this material. Nothing herein is, or shall be relied on as, a promise or representation as to future performance. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Opinions expressed in this material may differ or be contrary to opinions expressed, or actions taken, by Fairlead Strategies or its affiliates, or their respective officers, directors, or employees. In addition, any opinions and assumptions expressed herein are made as of the date of this communication and are subject to change and/or withdrawal without notice. Fairlead Strategies or its affiliates may have positions in financial instruments mentioned, may have acquired such positions at prices no longer available, and may have interests different from or adverse to your interests or inconsistent with the advice herein. Any investments made are made under the same terms as nonaffiliated investors and do not constitute a controlling interest. No liability is accepted by Fairlead Strategies, its officers, employees, affiliates, or partners for any losses that may arise from any use of the information contained herein. Any financial instruments mentioned herein are speculative in nature and may involve risk to principal and interest. Any prices or levels shown are either historical or purely indicative. This material does not take into account the particular investment objectives or financial circumstances, objectives or needs of any specific investor, and are not intended as recommendations of particular securities, investment products, or other financial products or strategies to particular clients. Securities, investment products, other financial products or strategies discussed herein may not be suitable for all investors. The recipient of this information must make its own independent decisions regarding any securities, investment products or other financial products mentioned herein. The material should not be provided to any person in a jurisdiction where its provision or use would be contrary to local laws, rules, or regulations. This material is not to be reproduced or redistributed absent the written consent of Fairlead Strategies.