European automotive stocks have been hit hard since over the past eight months, with the STOXX Europe 600 Automobiles & Components Index down roughly 29% since peaking in April. Many of the major automakers in Europe, like Mercedes, BMW, Volkswagen, and Stellantis, are deeply oversold and have support nearby on their charts. This provides a compelling risk/reward opportunity in the space. The common setup in our indicators is reflected on a weekly bar chart of the STOXX Europe 600 Automobiles & Components, which has a counter-trend ‘buy’ signal from the DeMARK Indicators for the first time since late 2018. The signal suggests the corrective move is overdone and indicates an intermediate-term counter-trend upmove is likely in store for European automotive stocks. Monday’s news-driven selloff in Stellantis NV (STLAM IM) drew our attention to its chart, which shows the stock closing in on key support from its 2022 low (€11.15). There is a new counter-trend ‘buy’ signal on the monthly bar chart, which increases the likelihood that a test of support will hold and give way to a relief rally lasting several months. A timely opposing ‘sell’ signal from the same model marked this year’s peak. STLAM IM recently saw its weekly MACD shift to a ‘buy’ signal, showing a meaningful loss of downside momentum from an intermediate-term perspective. There is also an active counter-trend ‘buy’ signal on the weekly chart that increases the chances that today’s gap down is exhaustive. We would be more confident that an important low is in place if STLAM IM can quickly rebound and clear initial resistance from its 10-week moving average, near €12.35. In contrast to STALM IM, the more popular Ferrari NV (RACE IM) has a long-term uptrend in place, strongly outperforming the STOXX Europe 600 Automobiles & Components Index. However, its uptrend is due for a prolonged consolidation phase per the DeMARK Indicators and the monthly stochastics, which are turning lower from overbought territory. The monthly MACD histogram has been ticking lower for several months to suggest momentum behind the uptrend is weakening. The setup suggests that the laggards in the industry, like STLAM IM, could see a phase of outperformance while RACE IM corrects and relinquishes its leadership stronghold. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: All opinions expressed by the CNBC Pro contributors are solely their opinions and do not…
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