Though Wall Street remained closed on Tuesday, earnings season rolled forth unimpeded. Ford (NYSE:F) reported Q3 earnings of 40 cents per share, besting the Street’s expectations by 10 cents. With Ford up more than 5% in early trading on Wednesday, the positive report is acting as quite the bullish catalyst. Let’s survey the auto space through the lens of technical analysis:
Click to Enlarge Before zeroing in on the price chart of F, we begin with a brief assessment of the Dow Jones US Automobiles Index.
Since bottoming in late July, the auto index has experienced an orderly reversal into an intermediate uptrend now firmly positioned above the rising 50-day moving average.
Concurrent with the trend reversal, we’ve seen a notable shift in relative strength versus the S&P 500 Index. Autos have been able to shake off the relative weakness that plagued them for much of the year and are now outperforming the broader market.
Click to Enlarge Ford has formed a fairly textbook inverse head-and-shoulders pattern, with neckline resistance currently resting in the $10.50 zone. Once the bulls muster the strength to breach this pivotal zone, higher prices should be in the offing.
The recent action in volume has been helping to confirm the overall bullish tone of Ford shares. The past two months have seen multiple accumulation days, helping reveal institutional support of the nascent uptrend.
One catalyst for the auto space to be aware of is Thursday’s release of October’s Motor Vehicle Sales. According to Bloomberg, “sales of light motor vehicles hit a new recovery high in September …” Continued improvement in this key metric should help buoy auto stocks and make a breakout of the aforementioned neckline in Ford all the more likely.
Of course, the behavior of auto stocks will be largely influenced by the action in the broader U.S. equities market. With the Nasdaq Composite Index still on the ropes, traders certainly would like to see some signs of stability before plunging back into the bull camp. Assuming such signs arise, the auto industry — and Ford in particular — should generate alluring opportunities.
With Ford shares boasting a price tag of around $11, it’s really not that cost prohibitive to simply purchase shares of stock outright. If you’re inclined to take the options route, consider buying the December 10 calls now that Ford has broken above resistance at $10.50.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.