O'Reilly Automotive: Watching the Volume

 | Aug 16, 2017 | 1:18 PM EDT
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O'Reilly Automotive Inc. (ORLY) declined more than $100 since April and has recently rebounded $40 in a few weeks. I think that is why they invented seat belts. Which direction will prices turn? Retrace the bounce, go sideways or continue to rebound? Up, down or sideways.

Let's get out a few wrenches and screwdrivers (charts and indicators) to see how to proceed.

In this daily bar chart of ORLY, below, we can see the parabolic-like sell-off this calendar year followed by the heavy volume around the early July low at $170. This may have been a "throw in the towel" low. Prices made a quick bounce to nearly fill the bearish gap form early July. Prices are still below the declining 50-day moving average line and the declining 200-day average line. The daily On-Balance-Volume (OBV) improved only very modestly since early July as volume has not been strong. The trend-following Moving Average Convergence Divergence (MACD) oscillator crossed in mid-July for a cover shorts buy signal. The oscillator came all the way back up to the zero line but it looks like it is turning lower again.

In this weekly bar chart of ORLY, below, we can see the declining 40-week moving average line and the weak weekly OBV line. On this time frame the MACD oscillator is bearish and a cover shorts signal could be a ways off.

In this Point and Figure chart of ORLY, below, we can see the long decline and the rebound. This chart shows a possible upside price target around $229.

Bottom line -- ORLY could continue to race higher but a pullback and further sideways consolidation would make for a stronger chart. Ideally a pullback to $180 would be nice to allow for a low risk buying opportunity by having a sell stop below $170. A near-term rally to $220 to $230 is possible but without a strong volume picture I would not anticipate those gains could be sustained for long.

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