How Europe-free GM and other auto stocks could rack up a ‘massive breakout’

A $2.3 billion deal has shaken up car stocks this week, adding to some bullish buzz around the industry.

Shares in Peugeot SA UG, +1.07% are up about 4% for the week, after the French auto maker agreed on Monday to buy General Motors Co.’s European car brands.

News about a possible sale first came in mid-February, boosting both Peugeot  and GM’s GM, -0.84%  stocks.

The companies now have inked a deal, with Peugeot promising to pay $1.4 billion for GM’s Opel and Vauxhall brands. The U.S. car giant’s European financial operations are to be jointly acquired by Peugeot and French bank BNP Paribas SA BNP, -0.02%  for about $950 million. As part of the overall deal, GM will take a $4 billion charge.

Jonathan Krinsky, chief market technician at MKM Partners, sounded upbeat about the car industry in a note over the weekend, before details of the $2.3 billion deal rolled in.

“We see a potential massive breakout in auto makers vs. auto retailers after a ~600% underperformance over the last 11 years,” the technical analyst said in a note dated Sunday.

These are the motor-vehicle makers that Krinsky recommends buying: GM, Harley-Davidson HOG, -2.11%  , Ferrari NV RACE, -1.60%  , Peugeot, Volkswagen VOW, +0.86%  , Renault SA RNO, +0.66%  and Yamaha Motor Co. 7272, +0.42%  

And these are the auto-parts retailers that he says to sell: Advance Auto Parts Inc. AAP, -0.71%  , AutoNation Inc. AN, -1.07%  , AutoZone Inc. AZO, -0.18%  and Genuine Parts Co. GPC, -0.55%  

The chart watcher offered this illustration as he suggested this is car manufacturers’ moment:

MKM

Krinsky also shared this chart showing the recent leap by GM’s stock, which closed 0.8% lower on Monday:

MKM

And the MKM technician highlighted these chart setups for American and European auto makers, suggesting there could be more gains ahead:

MKM

To be sure, other stock pundits are downbeat on companies who are producing motor vehicles. Barron’s, for example, has argued motorcycle giant Harley “could be headed for a nasty spill.”

This story was first published on March 6, 2017.