If you’re confused about the future of Ford Motor Company (NYSE:F) stock shares, you’re not alone.
While “peak auto” is a very real thing, with Ford stock valued at a trailing P/E of only 11.8 — and a forward-looking P/E of 6.9 — it certainly seems as if the worst-case scenario has already been priced in. And, while many F stock holders felt now-former CEO Mark Fields had to go, just as many investors have reservations about new CEO Jim Hackett.
In the meantime, rival General Motors Company (NYSE:GM) appears to be pulling ahead of Ford, yet Ford is investing a lot of money to expand its capacity, earmarking $900 million just this week to upgrade its SUV factory in Louisville, Kentucky.
It’s a lot to process.
Thing is, as unlikely and unfortunate as it is, Ford the company and Ford stock have become disconnected. F stock is now the pawn in a psychological chess match between the bears and the bulls, and it’s the chart of Ford shares that will drive the near-term rhetoric, rather than the other way around.
And that chart is close to a fork in the road.
At a Tipping Point
The past three years haven’t been easy ones for Ford shareholders. F stock is now down nearly 36% from its July-2014 peak, even though the carmaker has continued to grow the top and bottom line.
That slow demise of Ford stock has framed some telling technicals as well. That is to say, traders have priced F stock in such a way that some clear support and resistance lines have been drawn in the sand. We’re about to bump into a major one.
The chart below tells the tale. Going all the way back to the 2012 low, Ford shares have made three major lows in a mostly straight line. At the same time, the string of lower highs since 2014 have also materialized in a straight line. In combination, the end result as a converging wedge pattern (framed by blue lines on the chart) that’s quickly leaving the stock little room to maneuver. One side or the other is going to have to make a decision soon.
At the same time — though not quite as important as the converging wedge — a minor support level at $10.73 has developed. That’s the red, dashed line on the chart, which tags the key lows from November and May.
With nothing more than a quick glance, it would be easy to conclude that no conclusion can be made. Ford stock is still above the lower edge of the wedge pattern and still above the horizontal support at $10.73. But, it’s also still below the upper, falling boundary of the wedge shape.
If you take a closer look at this F stock chart, however, you’ll see a couple of nuances.
One of them is the simple fact that Ford hasn’t tested the upper boundary of the wedge shape in a while. That’s out of character. Until now, most sizable pullbacks set up a bounce back to that ceiling. The other nuance is that, although still between support and resistance, the tendency has (mostly) been to log lower lows.
That’s the long way of saying F stock is actually in a downtrend, and the move’s got some momentum.
Looking Ahead for Ford Stock
The good news is traders don’t have to make a call, yet. There’s some room between where F is now and its absolute floor around $10.73 (which, more or less, coincides with where the lower edge of the wedge shape is now). Until F stock actually breaks under that support area, there’s a fighting chance of a rebound.
On the other hand, the odds and hints all suggest Ford stock is going to break under that floor. When and if that happens, there’s not a lot in the way of technical support to stop it.
The frustrating part is, Ford’s corporate performance doesn’t merit such a meltdown. You don’t invest in corporate performance, though… at least not in this case. Here, for better or worse, you’re trading based on how you think others will feel about Ford six to 12 months in the future.
Whatever the case, just note the importance of the $10.73 level here. That very well could make or break this stock.
As of this writing, James Brumley held a long position in Ford (F).
