One of the largest suppliers of auto car parts and components, Valeo SA (EPA: FR), had felt the load of problems that came with the coronavirus in the beginning of this year, and due to the lockdown measures that took place because of that. Certainly, after the lockdown measures were removed a couple of months ago in Europe and Asia, where around 4/5 of Valeo’s plants are located, this helped the company to stabilise its business again. However, Valeo operates in a very competitive sector, with its top competitors being Bosch, Magneti Marelli, Aam, Hella (ETR: HLE) and many more, who all have become more aggressive in the market, due to a fallen demand.
From the technical side, although the stock showed a bit of recovery from mid-March, it found good resistance near the 25.50 barrier in the beginning of June and struggled to overcome it since then. Today, FR opened with a gap to the downside, automatically breaking a medium-term upside support line drawn from the low of March 18th. That said, the share price is still locked in roughly between the 21.10 and 25.50 levels, which form a range. Given that the stock broke the upside line and is currently closer to the 21.10 zone, there could be a chance to see some further declines. However, we would prefer to wait for a drop below the 21.10 hurdle first, before getting a bit more comfortable with lower areas.
A drop through the lower side of the range, at 21.10, may spook a few new investors from going in at that moment, as such a move might increase the stock’s chances of moving further south. FR could then drift to the 19.08 obstacle, or even to the 17.42 area, marked by the lows of May 19th and 20th. The price may get a temporary hold-up there, but if there are still no new buyers in sight, a further slide could send the stock to the lowest point of May, at 16.27.
Judging by the RSI on our daily chart, the indicator is showing an increase in the downside price momentum, while it continues to point lower. The MACD, although it points lower and has just moved below its trigger line, still remains above zero. The RSI supports the idea of seeing more downside, but the MACD is in-line with the scenario of waiting for a confirmation break below the 21.10 hurdle, before aiming further down.
In order to examine higher areas, we would first wait for the share price to climb above the previously-discussed 25.50 barrier. This way, the stock would confirm a forthcoming higher high and more buyers may appear. FR might then travel to the 26.38 territory, or even the 27.98 hurdle, marked by the high of February 21st. If the buying doesn’t stop there, the next possible resistance level could be at 28.72, which is the highest point of February.
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