While Ford Motor Company (NYSE:F) has largely rallied alongside the broader market amid the Trump rally, F stock is beginning to show signs of strain.
The shares are overbought and F stock price support appears to lack the same Trump-style enthusiasm afforded the banking industry — or even others in the manufacturing industry.
What’s more, there are several additional factors that could sink F stock before this budding rally gains momentum.
For starters, today’s Fed interest rate hike creates a dangerous situation for Ford. With euro-zone currencies still under pressure following Brexit, the U.S. dollar is trading at multi-year highs, making Ford products more expensive overseas and cutting into sales. A rate hike from the Fed today would only exacerbate the problem by further strengthening the dollar and potentially deepening into Ford’s overseas sales troubles.
Speaking of overseas sales, China could be a major problem for many U.S. manufacturers given the tense relations between the country and President-elect Trump. Trump has already thumbed his nose at Beijing by meeting directly with Taiwanese leaders, violating a the U.S.’s longstanding “one China” policy.
In fact, reports surfaced today that China would soon penalize an unnamed U.S. automaker for monopolistic behavior. While China says that no one should “read anything improper” into the timing of the penalty, this may be the first salvo in an increasingly tense U.S. relationship.
So, with Ford’s fundamentals in question, it should come as no surprise that the sentient backdrop for F stock is beginning to lean toward the bearish end of the spectrum. For instance, Thomson/First Call reports that 14 of the 22 analysts following Ford stock rate the shares a “hold” or worse.
And the situation could devolve from here, as the the 12-month consensus price target of $12.60 represents a discount to Tuesday’s close. In other words, if analysts feel that F stock is fully valued at current levels, we could see a few of those buy ratings shift to holds or sells, especially with the potential pressures from China and an interest rate hike.
Click to Enlarge Options traders, who had cheered F stock’s post-Trump rally with call activity, are now beginning to shift back toward put options.
Currently, the January put/call open interest ratio rests at 0.59, but this reading has risen steadily during the past two weeks, indicating a rising level of caution among F stock speculators.
Overall, January implieds for Ford stock are pricing in a potential move of about 4.7% for F through the end of next month. This places the upper bound near $13.09 — just shy of last week’s highs — while the lower bound lies at about $11.91 — offering up a potential breach of technical support at $12, not to mention several short-term moving averages.
2 Trades for F Stock
Bear Put Spread: For those concerned about the looming downside risk for F stock, a January 2017 $12/$12.75 bear put spread has plenty of potential. At last check, this spread was offered at 22 cents, or $22 per pair of contracts. Breakeven lies at $12.53, while a maximum profit of 53 cents, or $53 per pair of contracts, is possible if F stock closes at or below $12 when January options expire.
Call Sell: If a put spread is too bearish for you, then a more neutral January $14 call sell position may be what you are looking for. Selling out-of-the-money calls can be especially useful if you already own F stock, as it allows you to offset some of your portfolio losses in the event of a selloff, but also allows you exposure to any upside up until the stock trades at or above $14.
At last check, this option was bid at eight cents, or $8 per contract. At last check, this option was bid at 45 cents, or $45 per contract. On the upside, you keep the premium as long as F stock closes below $14 at expiration. On the downside, if the stock rallies above $14 prior to expiration, you could be forced to provide 100 shares at F’s current market value for each call sold, which could be quite costly if you do not have enough stock on hand to cover the call.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
