On Friday, we looked at a Daily Price Chart and an On Balance Volume Chart for Walt Disney Co., noting that the stock has been in a price downtrend.
Today’s Chart of the Day is a 10-Month Simple Moving Average Chart for Advance Auto Parts Inc. (NYSE: AAP).
Advance Auto Parts, Inc. provides automotive replacement parts, accessories, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy-duty trucks. The company offers battery accessories; belts and hoses; brakes and brake pads; chassis and climate control parts; clutches and drive shafts; engines and engine parts and more.
Now, below is a 10-Month Simple Moving Average Chart for Advance Auto Parts Inc.
Back in January 2020, the AAP 1-Month Price crossed above the 10-Month simple moving-average (SMA) indicating AAP is on a PowerTrend ‘sell’ signal (circled).
Guess what happened next…
Sure enough, prices continued to fall.
Since the PowerTrend ‘Sell’ signal occurred for the stock back in January, when the stock was around $131.75, the stock has gone on to drop 13.7%.
Now, as you can see, the 1-Month moving-average is still below the 10-Month SMA. That means the bearish trend is still in play!
This bearish price trend makes AAP a good candidate for a put option purchase.
As long as the 1-Month Price remains below the 10-Month SMA, the stock is more likely to keep trading at new lows in the coming days and weeks.
We’ll be keeping our eye on this stock as it continues to trend downward so we’ll know the moment the market conditions shift and the stock begins to come back up offering a better buying opportunity in a bearish market.
Chuck’s Market Take:
The 11 year Bull is offically dead.
The major market indexes are now in confirmed Bear markets across the board defined by a 20% decline from peak prices.
The Fed is doing everything in its power to stop the bleeding, and so far, it’s not working.
This is unlike anything I’ve ever seen in my 36 years of trading. It’s widespread and while some sectors are not getting slammed as hard, nothing is a “safety” group here.
We’ll see some bounces – sooner rather than later – but getting in too early is extremely dangerous and can compound losses to the point of no return. Look at what happened this past Friday. A huge rally into the close was offset at the open Monday, even after the Fed cut rates a full point and injected more money into the system.
Remember, our job as traders is to keep drawdown to a minimum. This is why we use options. We clearly define risk on every single trade before we place any orders.
There WILL be opportunities here to make money. The PowerTrend system is a trend following system, and works very well in a Bear market.
It’s time to be patient and trust the signals. Rest assured, I’ve got your back here. I’ll be monitoring the markets and looking for the best trades when they setup.
Editor, Chart Of The Day