Another Predictable Breakdown Once Key Supports Are Broken
AutoNation, Inc. (AN), through its subsidiaries, operates as an automotive retailer in the United States. As of December 31, 2008, the Company owned and operated 302 vehicle franchises from 232 stores located in metropolitan markets, predominantly in the Sunbelt region of the United States. Its stores sell 37 different brands of vehicles. During the year ended December 31, 2008, the core brands of vehicles sold by the Company, represented approximately 96% of the vehicles sold by it, were manufactured by Toyota, Ford, General Motors, Honda, Nissan, Chrysler, Daimler and BMW.
I shorted AN on the breakdown of $12.50 on Friday. Ideally I wanted to short it on the breakdown of $13.00, but it was not a clear signal. However once the $12.50 support was taken out, I opened a short position. With-in minutes I was rewarded as the stock dropped all the way to $12.10 level. Next stop was the breakdown of $12.00. However the stock jumped back up from $12.10 to $12.30. That was an indication that $12.00 will not be broken easily. As more sellers poured in driving the stock back to $12.10, I covered my shorts. However after few bounces from the $12.00 support, it cracked below it and dropped as low as $11.70.
This was a classic example of how supports and resistance work, and how once those support lines are broken, the stock keeps dropping.