Tomorrow is a huge day for LKQ Corp. This has been a hot stock on our radar for several years. We even suggested buying back in late 2010 before it broke out. Since October of 2013 the stock has been range bound between $24 and $34 a share. Every time it reaches one end of the range it bounces around to the other end. An almost three year consolidation is very unusual but potentially very profitable. Below you will see the chart for LKQ over the last five years:
Notice the “train track” range between $24 and $34. Also notice the recent uptrend that started at the beginning of 2016. Now, let’s get to the earnings report that will come out before the open on Thursday, July 28th, 2016.
If the earnings are good, which we expect, LKQ will break through the top of this trading range in high volume. A break out of this range will allow this stock to rocket much higher. It will be on the radar of all the trading programs looking for breakouts, stocks at 52 week highs and stocks at all time highs. Institutional investors at mutual funds will gobble up the stock knowing it is out of the three year trading range. They also want to make certain they can publish the stocks owned in 2016 with those near 52 and yearly highs.
We will likely also see the uptrend line that started at the beginning of 2016 hold as the support level moving higher. Does this mean we could see this stock at $50 in 2016 or early 2017? It is very possible if the earnings are strong enough and the stock breaks out properly.
For decades William O’Neill has pointed out the importance of consolidation before a break out. If you believe in the IBD formula or the power of breakout stocks, you know the longer the consolidation, the higher the run after the break out.
We have two very strong cup and handle patterns in the LKQ chart. The large cup and handle spans almost three years and the smaller cup and handle is just over one year. Both of these formations are set up perfectly for a breakout after this earnings report.
All of that being said, LKQ needs to report a strong quarter. When looking at the Google Trends chart for LKQ over the last several years it is quite obvious more people are searching for keywords related to this company. What is interesting, is the fact that the searches continue to increase yet the stock has been in a trading range for almost three years now. We saw this with Ulta (ULTA) and, more recently, Dollar General (DG). Both of those stocks have rocketed to new highs recently and are some of the best stocks of 2016.
If more people are search, more people are buying and the management remains strong, we see no reason why LKQ should not have a record quarter to report on July 28th, 2016. Only time will tell.
Below you will find our research of the last five (5) years of LKQ search traffic from March 2011 until March 2016. Every month in 2016, search traffic has increased at least 10% year over year when compared to 2015.