Last week J.D. Power and Associates released their annual Initial Quality Survey (IQS). The IQS is one of the most widely watched gauges of quality for new cars. The survey rates which new vehicles buyers believe to have the fewest defects showing up within the first 90 days of ownership. The top 5 were as follows: Porsche, Acura, Mercedes-Benz, Lexus and Ford came in at #5.
Although Porsche came in at #1, the bigger news was the rise of Ford’s quality. This was the first time in the IQS’s 24 years that Ford has ever cracked the top 5. This ranking shows Ford’s obvious progress in improving the quality of its brand. One of Ford’s cars, the Mustang, even ranked #1 overall in it’s individual segment. So, Ford the company appears to be doing very well, but what about Ford’s stock?
You will notice a 1-year chart of Ford’s stock shown below. I have added a few support and resistance lines to the chart so that we may analyze the stock for potential trading opportunities. The black line shows the recent double top formation at $14.50. The red lines reflect a common area of resistance at $12, which was also support in April. Ford’s short-term uptrend is denoted by the upward sloping, blue support line. I will use these important price points to analyze potential entry points for the stock.
F – 1 YR.
Let’s first look at the trend of the stock. It would appear that the stock had already reflected investor sentiment towards Ford, the company, by rallying from around $5 in July of last year to $14.50 in April of this year. Recently though, the stock seems to have seen a decent amount of profit taking as it has fallen to the $11 area. So, notice how the “fundamentals” of the company seem to be great judging from the most recent IQS report, but might our knowledge of those fundamentals lag the reaction of the stock? The point being, as individual investors and traders, we usually cannot know what the “big money” is thinking on a real time basis. The “big money” is ultimately what moves the market. By the time fundamental info regarding the markets or any company get’s to “the little guy”, the markets and/or stocks have generally already reflected that information. However, what if you still like the company Ford? Might there still be a trade? Yes, and that’s why you want to look at the STOCK, not necessarily the company!
The Tale of the Tape: Ford’s stock is currently bouncing on top of its uptrending support line (blue), but is approaching its first level of resistance at $12 (red). As a short term trader, a break above the $12 level would provide a potential entry of a lng position with a stop loss. below $12. If you have a longer term view, you might want to wait to see if it can clear the $14.50 resistance (black) before entering a long position. Another option would be, whether short or long term view, possibly entering a long position on a break above $12 and then add to that position on a move above $14.50. If a trade is entered on a break above $12, and IF the stock gets to $14.50, don’t forget to tighten up your stop loss in case of a pullback lower from that resistance.
On the other hand, if the stock breaks it’s uptrending support (blue), the stock is apparently going lower and you will want to wait out the stock until it approaches a better entry point. Waiting for the most opportune times that I have outlined above could provide you with the highest probability trading points. No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.
Christian Tharp, CMT