Autozone Topside Breakout Potential


With more than 4,600 stores in the US, Puerto Rico, and Mexico, Autozone (NYSE: AZO) is one of the larger U.S. based retailers and is a Fortune 500 company.  Its business of selling automotive replacement parts and accessories is doing well and the stock had a monster year in 2010, up more than 70%.  Even this year the stock is up around 8% but it does continue to act well technically so betting against it from a technical point of view is not the path of least resistance for now.     

Going into earnings season I’m always careful with adding new trades and will always check when any given company’s earnings or that of a major competitor is scheduled to be released.  As a general rule I don’t like to hold many stocks during earnings announcements.  Autozone (NYSE: AZO) is clear in that regard, no earnings announcement just around the corner in the coming days.

On the weekly chart we note a clear steepening of the uptrend that started in late 2009 and still serves as support. 


Zooming in on the daily chart of Autozone (NYSE: AZO) reveals a few more nuggets of information that might propel this stock higher still.  The rising 50 day simple moving average (yellow line) has been remarkably well respected and when it didn’t act as support acted equally well as resistance, although for smaller amounts of time given the strong uptrend.  The thus far year to date high was reached on May 31 and then again re-tested just a couple of days ago on July 7th where it found resistance.  The most recent up-trend from June 8th is the most immediate support level.  Combined with the resistance (horizontal blue line) at $299.60, this uptrend (blue line) shapes a bullish triangle formation.     


The trade I see here is to go long on a breakout and daily close above $300.  Stops can be set at $294 and profit targets at $310.


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