By Stockpickr Staff
Posted on June 9, 2009

The auto sector has not been a kind place to investors for quite some time now. Just take a look at the performance of General Motors (GMGMQ) since October 2007 when the stock was trading hands at around $42 a share. Now that GM has filed for bankruptcy, the stock is not even listed on the NYSE anymore, and it has plunged all the way down to current levels of around $1.40 share.

That is a monster loss for anyone who held the stock all the way down and ignored many of the warning signs evident from the stock's chart. For example, the stock broke many support levels and key trend lines and did it on huge volume. These were all indications that the stock was under heavy distribution and not accumulation by the large institutional investors.

General Motors wasn’t the only victim of the auto sector nightmare. Companies such as Ford (F), Tata Motors (TTM), Lear (LEA) and Toyota Motor (TM) were all hit hard and saw large declines in their stock prices. As is often the case with any sector, when one company is in trouble, the entire group is at risk.

Even motorcycle maker Harley-Davidson (HOG) wasn’t spared from the massive selling pressure that took the auto space lower. Things became so dire at Harley-Davidson that Warren Buffett had to inject $300 million into the company with an impressive 15% annual interest rate for his investment. This was clearly a sign that Harley was desperate to raise capital and that the consumer spending environment for motorcycles was nonexistent.

However, now that General Motors and Chrysler have filed for bankruptcy, it could be a great a time to look for buying opportunities in the auto space. When the news is so bad and investor sentiment is extremely bearish, it will often signal a bottom in a sector. Right now you can make the case that this is the situation in the auto complex. In fact, the stocks of many auto companies are starting to trade as if the worst is over.

With this in mind, let’s take a look at a few auto stocks that look enticing based off of their charts.

1. Ford

If you are looking for opportunity in the auto sector, you need look no further than auto giant Ford Motor (F). Ford has so far been able to avoid taking any of the government’s bailout money, which is considered among many investors as a bullish sign for the long-term health of the company. Just look at what happened to General Motors after it took the bailout money.

Looking at the chart below, you can see that Ford has been trading in a consolidation pattern from around $6 to $6.50 share. Shares of Ford have some previous resistance at around $6.54 a share. If the stock can manage to trade above that level, it could be setting up to head back toward the next significant resistance level at around $9 a share (not seen on this chart). Volume for June continues to look strong for Ford, with a number of up days surpassing the average daily volume of around 98 million shares.

It’s also worth noting that more than 4.8% of the float is currently sold short as of May. Those shorts might be forced to unwind their bearish positions now that it looks highly likely that Ford will not need to file for bankruptcy. From a consumer standpoint, who would you rather buy a car from: Ford or now-bankrupt General Motors?













2. Navistar International

Next up is Navistar International (NAV), a manufacturer of commercial trucks, buses, diesel engines and military vehicles. On Tuesday, the company narrowed its outlook for 2009 due to expectations that the global recession will last longer than expected. The company also reported that second-quarter profits dropped 94% due to weak market conditions.

Despite that bad news, the stock actually traded up on heavy volume. This is a great example of why it’s important to focus on the action of the stock to the news and not the actual news itself.

Looking at the chart below, you can see that shares of Navistar are starting to break out now that the stock has traded above $43.50 a share. This breakout is being accompanied by strong volume of more than 3.6 million shares, vs. the average daily volume of around 1 million shares. If the stock can continue its uptrend, it could be set to trade back toward the next areas of resistance at $55 a share and possibly even $63 (not seen on this chart).












3. Lear

Another interesting auto stock is Lear (LEA). Lear is a global supplier of automotive seat systems, electrical distribution systems and electronic products with locations in 36 countries around the globe. This stock has been absolutely decimated! It use to trade at about $40 a share back in 2007 and now fetches around $1.50 a share.

Looking at the chart below, you can see that shares of Lear have started to find some solid support around the 50-day moving average of $1.18 a share. On Tuesday, investors jumped in to snap up the beaten-down stock and drove it up more than 26% in midday trading on gigantic volume. Could this be signaling a bottom for the stock?

The volume would seem to suggest that the worst is over for Lear and that the stock is ready to move much higher. Volume so far on Tuesday has tracked in at over 15 million shares, vs. the average daily volume of only 5.4 million shares. The stock now looks ready to trade back towards $1.90 a share, and if it can break above that level it could run towards the 200-day moving average of $3.24.

It’s also worth noting that over 7% of the float is currently sold short as of May. Watch for some massive short squeezes if Lear can crack through any of the previous resistance on the chart.












4. Dana Holding

Another auto stock that looks compelling is Dana Holding (DAN), a supplier of axle, driveshaft, structural, sealing and thermal products for global vehicle manufacturers. Back in May of 2008, this stock was fetching $12 a share, but it now trades at under $2 a share.

Looking at the chart below, you can see that shares of Dana Holding have found some solid support at around $1.25 a share. The stock now looks ready to make a move back toward some previous resistance at the 200-day moving average of $1.80 a share. The stock is starting to get active on Tuesday, up more than 10%, as investors jump into the sector looking to play the beaten-up names now that GM is bankrupt. Volume today has clocked in at more than 2.3 million shares, vs. the average daily volume of 1.1 million shares. If Dana can trade above $1.80, watch for the stock to make a run back towards $2.75, or possibly even higher.











For more ideas, visit the Charts of the Week portfolio.

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