Despite last week’s setback for Ford Motor Company (NYSE:F) shares, F stock started the new trading week on seemingly better footing. It edged a little higher, right where technical support was most expected. It’s far too soon to say Ford shares are out of danger though. Indeed, the danger of a more sizeable plunge in the F stock price is still too close for comfort for current or prospective owners. One small misstep could kick-start the next wave of selling.
The good news is this mostly fundamentally-driven story has, for the time being, morphed into a technically-driven one. And the chart was nice enough to draw traders some clear and meaningful lines in the sand.
Playing With F Stock Fire
The value proposition is certainly strong enough. Years of overproducing to capitalize on a red-hot automobile market could soon be up-ended by a massive supply of high-quality used cars. Then there’s consumer satisfaction with vehicles that are “new enough.” Still, the forward-looking P/E ratio of 7.7 F stock is currently sporting implies traders have priced in some sort of automobile apocalypse. Things would have to get downright horrifying in the near future to justify that kind of valuation. Such a cataclysm just isn’t in the cards.
That’s a long-term construct though. It won’t prevent short-term problems for Ford Motor shares. Indeed, matters are still on the verge of going from bad to worse for F stock.
Traders have been collectively kind enough to show us where push turns to shove. First and foremost, note last week’s (and this week’s so far) low is more or less in line with the lows made all throughout October. It’s also rather clear that the 50-day moving average line (purple) at around $12.00 is playing a support role. That’s just as one would expect it to. As long as the stock holds above that floor, the bulls will have a fighting chance at rekindling the rally that began in earnest in August.
That’s only a small fighting chance, however, judging from the chart’s accumulation-distribution line.
F Stock Bears Have the Edge
It’s somewhat evident on the daily volume bars that there’s not been a great deal of volume on the few days since October that F stock price has managed to make forward progress. However, the picture is more clear when the data is turned into a more organized and telling trend line, in the form of a Chaikin Money Flow indicator. There we can see the volume undertow is leaning bearishly. It’s on the verge of sliding under the key zero level. That’s where things get particularly bearish.
We’re not there yet. But should the Chaikin line break under zero at the same time the floors around $12.00 buckle, a revisit of the now-converging 100-day (gray) and 200-day (green) moving average lines seems almost inevitable.
Though it’s not meaningful to the immediate discussion, it is worth pointing out there’s a major ceiling now in place as well. That ceiling is October’s and early-November’s high around $12.50. Even if Ford Motor shares sidestep an implosion right now, until that resistance is breached, a breakdown remains a distinct possibility. At the other end of the bigger-picture spectrum is the floor. That consists of the 100-day and 200-day moving average lines around $11.60. If those lines fail as a floor, there’s nothing to stave off a bigger pullback until you get back to August’s low around $10.50.
What to Do With F Stock Right Now
It may be tempting to make a play on Ford, from either side of the table. But the smart-money move right here may be to do nothing at all. Let the chips fall where they may. There’s a good chance the F stock price could do little more than just bounce around among the aforementioned lines for a while, yielding no fruit for anyone willing to take a stand with an actual position.
There’s a flipside, of course. When and if Ford stock does break out of its technical confines, don’t be surprised to see a lot of major movement, making up for lost time. Indeed, it’s probably worth waiting on that movement to make a trade here. There’s only a one-point difference between the upper and lower boundaries right now. That’s not enough juice to try and squeeze out of the chart as it currently stands.
As of this writing, James Brumley held a long position in Ford Motor Co. You can follow him on Twitter.