In his "No Huddle Offense" segment of Mad Money Thursday night, Jim Cramer said buying stocks is a lot like buying real estate. Location matters. Even the worst house in a good neighborhood is better than a great house in a place no one wants to be.
The auto industry is once again becoming a good neighborhood, as your car is proving to be one of the safest ways to travel in a world with masks and social distancing. Cramer said there are a number of ways to play the bull market in autos. He once again recommended Lithia Motors (LAD) and Sonic Automotive (SAH) . We looked at LAD on Thursday and wrote that, "LAD sounds like it has an interesting business model but right now the charts suggest the stock price can decline. Avoid the long side for now."
Let's check and see if SAH is ready to be purchased. The company operates more than 100 dealerships and markets new and used cars, replacement parts and vehicle maintenance.
In this daily bar chart of SAH, below, we can see that prices have been trading sideways since July. SAH is currently trading just below the flat 50-day moving average line and still above the rising 200-day moving average line.
The On-Balance-Volume (OBV) line has moved lower from August but could be bottoming this month. Prices held steady even with sellers of SAH being more aggressive. For now I see this as a positive for the stock.
The Moving Average Convergence Divergence (MACD) has been hugging the zero line lately so we want to watch it closer for its next signal.
In this weekly bar chart of SAH, below, we can see a mixed picture. Prices are in an uptrend above the rising 40-week moving average line.
The weekly OBV line has been weak since August and that tells us that sellers of SAH have been more aggressive.
The MACD oscillator has crossed to the downside for a take profits sell signal in this longer time frame.
In this daily Point and Figure chart of SAH, below, we can see a modest upside price target in the $45 area.
In this weekly Point and Figure chart of SAH, below, we see a potential longer-term price target in the $64 area.
Bottom line strategy: As noted, SAH has been in a sideways trading range since July. It is not absolutely clear that prices will move higher with a declining OBV line so I recommend waiting for price strength with a rising OBV line before going long.