Last Wednesday’s 8.9% thrashing in Ford (NYSE:F) shares is simply the latest turn in an increasingly bearish story. The sharp slide in F stock erased much of what was gained during the previous week’s epic snapback and has the sputtering auto giant fast approaching new lows. Let’s take a fresh look at all that ails Ford stock holders.
Stock prices are the ultimate forward-looking economic indicator. They peer far off into the distance and price in what’s to come, now … at least, they try to.
With a year-to-date loss of more than 55% — 2.5x the decline in the S&P 500 index — the future for Ford has been weighed, measured and found desperately wanting. The cause for its demise is the same force driving all stocks into the ground: COVID-19.
U.S. weekly jobless claims doubled to 6.6 million. Perhaps this goes without saying, but unemployed people don’t buy new trucks. The pool of potential auto shoppers is draining at a rapid pace. And it’s unlikely to get any better as long as the pandemic persists.
Ford Motor on April 2 announced a double-digit decline for its first-quarter U.S. vehicle sales. The 12.5% drop versus the year-ago period actually doesn’t even seem that bad compared to the carnage the stock price is witnessing. But the coronavirus crisis wasn’t in full swing until the last month of the quarter, so its Q2 that will bear the brunt of the damage.
And then there’s the company’s recent suspension of its dividend. While necessary to preserve capital for the coming storm, it certainly adds to the punishment shareholders are suffering. F stock owners no longer get to relish in a beefy dividend yield while waiting for recovery. At $6, the annual 60-cent payout had pole-vaulted to a 10% return. Now, it’s zero.
F Stock Charts
The price chart for F stock leaves little room for optimism. The best argument bulls have is the magnitude of the decline. It’s been so terrible that we could argue/hope that the worst has been priced-in. Again, we’re down 54.4% on the year and down 77% from the post-2008 peak reached in 2011.
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Unfortunately, with so much uncertainty still swirling around the global pandemic, it’s impossible to know just how far Ford will sink. In the 2008 market meltdown, it fell to $1.01 before finally rebounding. As cheap as today’s price of $4.24 looks, there’s still a ton of room to go if we were to revisit the ’08 low.
The safer bet seems to be waiting for evidence that the trend is turning up for F stock. We need to break above resistance and carve out higher swing highs and lows. We need slowing momentum. We need the formation of some type of bottoming pattern like a double bottom or inverted head and shoulders. Until we see one of these, there are zero technical reasons to bottom fish in Ford.
There will be plenty of profit potential if a legitimate recovery comes, so there’s no need to anticipate and take pre-emptive entries in hopes that we’re near the low.
It’s better to wait for confirmation of a turn, even if that means buying at higher prices.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!
