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How to Trade Ford as Shares Continue Racing Higher

Ford has been on fire, with the stock putting in back-to-back sessions of impressive gains. Here's how to trade the automaker from here.

Nine months ago, automakers like Ford  (F) - Get Ford Motor Company Report and General Motors  (GM) - Get General Motors Company Report were under serious pressure.

With Covid-19 causing economic and production-related disruptions, automakers were racking up serious expenses. The rapidness of the virus created a bloat of inventory and no way to unload it.

On top of that, Ford axed its dividend and the group - short of Tesla  (TSLA) - Get Tesla Inc. Report - never commanded a premium valuation.

All of a sudden, that doesn’t seem to matter. Automotive stocks are in and traditional analysis of the group is out.

After Nio  (NIO) - Get NIO Inc. American depositary shares each representing one Class A 蔚来汽车 Report, Tesla and other EV players have seen a surge, apparently its GM and Ford’s turn. The latter has been on fire, up more than 7% so far on the day even though off the highs.

The gains come a day after Ford stock jumped 8.4%. How long can the gains last?

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Trading Ford

Daily chart of Ford stock.

Daily chart of Ford stock.

Ford has made a miraculous comeback from the March lows. While the selloff was clearly overdone for most securities, the fact that Ford has now taken out the 2020 highs is outstanding.

That's particularly true given that investors weren’t willing to assign a premium to the stock for years. Now we have to wonder if this re-rating is permanent and if the valuation will continue to expand.

Shares consolidated nicely last week before exploding higher on Wednesday to the 200-month moving average. Then shares jumped to the upside again.

It would have been nice for Ford to rally all the way up to the 161.8% extension. Then at least a pullback would be more obvious and the risk/reward would favor some profit taking.

With shares backing off the highs, we really need to see what comes into play first: Support or resistance.

If it’s support, I want to see how shares handle a pullback. Specifically, I want to see the 10-day moving average catch up and act as support. Further, I want the $10.50 level and the 200-month moving average to also be supportive of the stock.

On the upside, a move above Thursday’s high at $12.15 puts the 161.8% extension on the table.