AutoZone Is Stuck in Neutral -- For Now

 | Aug 16, 2017 | 11:54 AM EDT
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Looking at a one-year chart of AutoZone Inc (AZO) shows that it peaked in December around $800 and rolled over with no brakes until July. A longer-term three-year weekly chart shows a topping pattern that goes back to September of 2015.

Prices, however, have reached a major downside price target, according to a Point and Figure chart. Is the road ahead a clear path to a base pattern? Let's check the charts and indicators and see if we need OEM parts or just investors willing to accumulate more shares.

In this daily bar chart of AZO, above, we can see the start of a turnaround. Yes, prices are still in a downtrend and the slopes of both the 50-day moving average and the 200-day moving averages are in downtrends, but let's look deeper. Prices closed lower yesterday after a retest of the July lows, but they closed near the highs of the day -- showing that buyers came in to reject the lows. It is early in the day, but prices have followed through on the upside.

The On-Balance-Volume (OBV) line followed the downtrend lower, showing that sellers of AZO have been more aggressive, but the OBV line has shown early signs of a reversal since mid-July. Before we leave the daily chart, look at the 12-day momentum study in the bottom panel. The momentum study shows a bullish divergence, with higher lows from May to July as prices made lower lows. The bullish divergence can be a leading indicator for a price reversal, as the pace of the decline has slowed.

In this weekly bar chart of AZO, above, we can see the large top formation in the $680-$820 area. We can see the subsequent decline to around $500 and the early stabilization. Prices are below the declining 40-week moving average line -- maybe too far below.

The weekly OBV line turned up in July, and signals a change in investor activity from aggressive seller to perhaps aggressive buyer. The weekly Moving Average Convergence Divergence (MACD) oscillator has begun to narrow towards a possible crossover and cover-shorts buy signal.

This Point and Figure chart of AZO, above, shows the top pattern and a long-term price target of $502, which was met. Meeting a long-term price target is not a reason to buy, but it is a start, as there is less reason for shorts to press their bets, so to speak.

Bottom line: I would be prepared for a $480-$560 trading range for several weeks before a better rally attempt can get going.

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