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Thursday, May 24, 2012

Auto sector

I saw Tom Lee an analyst from JPMorgan on Bloomberg TV who was somewhat optimistic on the markets.  He has a year end target of 1430.  When asked what was going to drive the market up he talked about a pick up in durable goods and specifically the auto industry.  I thought sales had been pretty good over the winter, I wondered if they had continued.  Here is a chart of auto sales I found.

On a year over year basis, sales look pretty good.  I decided to take a look at the auto manufacturers to see if they had already discounted the sales or if there might be more upside.  Here are the weekly charts for Ford, GM, Toyota and Honda.

Wow, after looking at car sales data I never expected the charts to look like that.  Needless to say with all the weekly charts in down trends it is not a great time to go long.  I  don't know if there is a statement about the economy in these charts or some industry related valuation thing.  Ford certainly does not look over valued.  In comparison to other industries, it would be out right cheap.  Unless the market is expecting a drop in sales, I do not understand these charts.  Autos are a very significant part of GDP.  If sales do drop that could have ramifications for the economic data and for stocks.  Yesterday the USA Today paper had an article claiming that most auto manufacturers were actually raising production, even hiring some people to meet demand.  If sales continue to do well, I would think these stocks would have to rally at some point, especially Ford.  On the other hand, if they are ramping up production (adding to costs) and demand is about to drop the charts might make some sense.  I guess we will see how this works out.


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