Late September, Ford stock embarked on a 30% rally. If you bought it late you are stuck down 7% from the high. Those investors are wondering where have all the bids gone? Before the rally, Ford stock had been depressed for a long while. Then Wall Street went on a buying spree. Now is the time to try and find the next move from here.
When everyone else feared it was the wrong time to go long, a bit of homework rewarded investors well. Early in July I shared a bullish bet on Ford. The rally from there to the October top was 36%. My message then was simple: “Bet on the F stock bounce into next year.”
Back then, Ford was languishing. Now it’s not.
The Ford Stock Thesis Was Easy
Sometimes the bullish bet is simple. Ford is still a great American company with a rare type of fan base. It’s just too bad the love on Main Street didn’t extend to Wall Street this whole time. Ford stock would not have languished for so long if it did.
I blame management because they failed to give investors reasons to chase it. Recently, there is a rekindling of interest and traders have come back. The reason for this renewed interest is perhaps the Bronco lineup. General Motors (NYSE:GM) is also helping auto stocks because they too are moving and shaking. GM recently announced the return of the Hummer, but this time it’s an electric vehicle. The success of Tesla (NASDAQ:TSLA) clearly lit a fire under their seats. Once the target of the jokes, it’s now the inspiration for the auto giants.
Now the question is for how long will this love last, and how far can Ford stock go?
There are no easy answers to this, but we can start by defining the time frame for the trade. For investors who want to own Ford shares for many years, now is as good a time as any. A few pennies up or down won’t matter much. However, those who are more active and picking levels need a bit of homework.
It’s Still Dirt Cheap
Fundamentally, the stock is inexpensive from the traditional sense. The forward price-to-earnings ratio is 8x and the price-to-sales ratio is 0.24x. This means only one-third of a year’s worth of sales is baked into the current price of Ford stock. That’s the opposite of “hopium,” which reduces the likelihood of downside risk.
It’s easier for the price to rise than to fall, especially inside this bullish market. Yes, Wall Street bulls are still completely in charge of Ford despite its recent bad days. It’s normal that volatility is this high going into a hot election week. But this too shall pass. And when stocks go back to trading fundamentals, not headlines, investors will buy the dip.
There is an old saying that “price is truth.” In reality, this is the secret sauce that serves us traders best in the short term. Technically, all the information we need to plot trajectories is in the charts. Finding the ranges and levels that matter is easy once you know what to seek.
There are two trade setups for Ford stock next. The first is to chase the breakout above $8.40 because it would at least target $9.50 per share. This won’t be easy, so patience is key. You should expect a fight.
The second trade is to buy-the-dip into the support near $7.25 per share. There will be buyers there and they will support the rally. Make no mistake about it — the bears are still in charge of the price action in Ford stock. Expect them to sell the rips until the trend reverses. There is a move coming because the range is pinpoint tight. The daily chart is setting higher-lows and lower-highs. This builds tremendous energy that needs an outlet.
However, we do not know the direction of the move yet, so wait for triggers.
The Elephant in the Room
Now let’s address the elephant in the room: The headline stream. These are outside risks that will affect Ford stock this month. First, we have the U.S. presidential election. Voting ends on Tuesday, but the fight will linger for days … maybe weeks. Wall Street hates uncertainty and that’s the kind they won’t ignore. Then there are the slew of economic reports ending in the major Non-Farm Payroll report on Friday. If that wasn’t enough, the Federal Reserve will have its day on Wednesday after their meeting concludes.
All of these factors will bear down on stocks more broadly, and Ford won’t necessarily be immune. As such, patience and caution are needed moving forward.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.