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Critical times for Ford Motor

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On Friday, after the markets had close, we started doing some snooping in the automotive group to see what, if anything, was taking place. What we found may be of interest to traders, especially if election results are held up in the courts. The coming trading sessions will be interesting for shares of Ford Motor Company. One of "the big three" that still remains standing (they're all standing, just different types of legs) and trying to hold a level of support just above $23. A trade at $23 could be trouble.

Ford Motor Supply/Demand Chart - $1 and $0.50 scale.

The supply/demand chart reveals that there have been enough buyers in shares of Ford Motor (F) to keep the stock from trading at $23. There have also been enough sellers just above $27 to keep the stock in a range. We've performed three different "bearish vertical counts" (see above) and the long columns of O's from $37-$27 indicated a potential long-term bearish price objective of $17. The second count of O's from $30-$24 indicates a long-term bearish price objective of $16, and the third count of the long column of O's from $29 to $24 gives us a bearish price objective of $17. With so many bearish price objectives, we'd avoid this stock on the long side currently, but be willing to try it to the downside with a stop just above at $28.

General Motors Supply/Demand Chart - $1 scale.

Readers that have been with us a while may remember a short play we alerted traders to back in early September near $73. We exited the trade with a tidy profit and from the looks of it we exited too soon. At the time, we were risking $4 to make $47 (bearish price objective was $26) and the bar chart confirmed a downward trend. A trader's life it is, but shares of GM have yet to find their bottom.

Daimlerchrylser Ag Supply/Demand Chart - $1 scale.

Things haven't been much better for shares of DCX than for GM or It's not a surprise to seasoned traders how these stocks have acted so similar. Remember when we were kids and we were asked to look at a picture and find a "hidden pair of scissors" (or some object)? Here's a test. In the above charts, how many "triple bottom" or "spread triple bottom" sell signals (when a column of O's exceeds a previous column of O's that looks like this?

Triple bottom sell

                           
O X   X                   
O X O X O                 
O X O X O                 
O    O    O      
            O
Spread triple bottom sell 
X 
X O X   X O X
X O X O X O X O
X O X O X O X O
X O    O         O 
                    O
University Study

The above automotive charts indicate that there's a "bear market" in the automotive group currently. At some time all things must end, but we're pointing out the "critical nature" of Ford's chart for the following reason. A Purdue University study performed by Professor Earl Davis constructed a table of "probabilities" associated with various "sell signals" and "buy signals". In a bear market a "triple bottom sell signal" was profitable (in a bearish trade) 93.5% of the time, with an average gain of 23% over an average 3.4-month timeframe. The "spread triple bottom sell signal" was profitable (in a bearish trade) 86.5% of the time, with an average gain of 24.9% over an average 4.6 months. Now, if you're an institution and looking at these types of odds (for or against) what would you be doing? We encourage you to check the aforementioned odds against the above charts. Granted, odds are odds. If Ford (F) were to trade at $23, the Purdue University study would say there's a 93.5% chance the stock will decline in value, but there's always that 6.5% chance that it won't! Therefor, we'd use a stop just in case.

-Staff Analyst

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