Shares of Ford Motor Company (F) slumped last Friday despite the fact that the company beat analyst expectations. From a technical perspective, F stock now looks to have resumed its downward trend, which active investors and traders could take advantage of by playing the stock from the short side with defined risk parameters.
In the third quarter, Ford earnings came to 24 cents per share on an adjusted basis — down 47% year-over-year but 5 cents better than the consensus. Meanwhile, revenues slipped 3% to $32.8 billion, which also beat the Street.
That drop in net income didn’t come as too much of a surprise to analysts, as Ford was open about expenses related to new car launches (among them, the new F-150) and new manufacturing plants in Asia.
Still, F stock now is more than 25% off its July highs and still vulnerable to more declines in the near term.
F Stock Charts
On the weekly chart, note that the weakness in F stock in recent months has brought shares back down to the late 2008 uptrend line. But at the same time (and as we have seen in many other stocks), upside momentum as measured by the Relative Strength Index (RSI) has been waning since early 2013 and created a series of lower highs. Also attractive to bears is the fact that this waning price momentum has led Ford stock to form a double top with its highs in October 2013 and July 2014.
In other words, if and when the 2008 trendline were to break, it could lead to a quick acceleration lower. Note: That’s different than saying F stock has to completely fall apart.
On the daily chart, you can see that the September and first-half October selloff in F stock has brought shares down to the 50% retracement line of the entire rally from July 2012. The stock then bounced along with the broader market, but after Friday’s post-earnings selling, it painted the daily chart with a nasty bearish outside day that came on a good spike in volume.
Through this lens, this bounce looks like the dead-cat variety, and now, F stock looks ready to make another move lower.
The next logical support level for the stock now comes in around $12.30-$12.50, which is the 61.8% Fibonacci retracement level of the two-year rally, as well as the lower end of a band of support (blue box) that dates back to early 2013.
Active investors and traders could look to short F stock against last Friday’s highs near $14.50, for a move toward the $12.30-$12.50 range.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
