Ford Motor Company (F) rallied to a two-year high on Wednesday, in a sympathetic buying bid following last week's powerful General Motors Company (GM) breakout. The struggling manufacturer holds a small stake in electric vehicle (EV) start-up Rivian Automotive, which just raised $2.65 billion in funding, adding fuel to the upside. Ford stock, which topped out a decade ago, is now trading above the 50-month exponential moving average (EMA) for the first time since a failed effort at the start of 2018.
- Ford topped out more than 20 years ago.
- The stock has entered the first uptrend since 2013.
- Multiple overhead barriers predict sub-par gains in coming months.
- Intermediate corrections in sector leadership could end the uptrend.
Market wisdom insists that rising seas float all boats in a bull market, and the red-hot EV segment of the automotive sector is no exception, with Tesla, Inc. (TSLA) and NIO Limited (NIO) encouraging investors to take a second look at GM in 2020. Those stocks have now rallied above rational valuations, encouraging rotation into less productive and lower-priced rivals like Ford. However, laggards are also the first to roll over in periods of market weakness, pointing to high risk in coming months.
Ford stock has been added to Deutsche Bank's short-term catalyst list, perfectly summing up the current advance. Wall Street consensus on Ford isn't as enthusiastic, with a "Hold" rating based upon three "Buy," nine "Hold," and one "Sell" recommendation. Price targets currently range from a low of $7.10 to a Street-high $12, while the stock is set to open Thursday's session just 60 cents below the high target. This lofty placement suggests that the rally will run out of steam quickly.
A laggard is a stock or security that is underperforming relative to its benchmark or peers. A laggard will have lower-than-average returns compared to the market. A laggard is the opposite of a leader.
Ford Long-Term Chart (1995 – 2021)
A multi-year uptrend posted an all-time high at $37.41 in 1999, giving way to a pullback that found support in the low $20s. The stock broke range support in 2001, entering a steep downtrend that ended in the single digits in the first quarter of 2003. The subsequent recovery wave made little progress during the mid-decade bull market, recouping less than half the loss, ahead of a near-death spiral during the 2008 economic collapse.
Ford posted a 26-year low at $1.01 and turned higher into the new decade, stalling at a 10-year high in the upper teens in 2011. That marks the highest high in the past 10 years, with 2013 and 2014 breakout attempts stalling less than a point under resistance. Price action entered a steady decline in the second half of 2014, carving an endless series of lower highs and lower lows, culminating in March 2020's plunge to an 11-year low.
The stock has gained ground at a steady pace since that time, lifting above the 2019 high at $10.56 on Wednesday. This marks the first higher high since 2013, signaling an uptrend that now faces multi-leveled resistance. For starters, the uptick has just reached the declining 200-month EMA, which has marked resistance since 2016. As a result, the rally could end quickly and ease into a trading range between resistance at $12 and support at $9.50.
A trading range occurs when a security trades between consistent high and low prices for a period of time. The top of a security's trading range often provides price resistance, while the bottom of the trading range typically offers price support.
The Bottom Line
Ford has entered a new uptrend, but multiple overhead barriers should limit short-term and intermediate gains.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.