Most analysts covering Ford Motor (F) - Get Report are trying to figure out how to evaluate the stock following Moody's decisions to cut its credit rating and downgrade its bond rating to junk status in early September. Even with this downgrade, they still say the maker of the iconic F-150 pickup truck is stable. My call is to be patient and buy weakness to its semiannual and annual value levels at $7.59 and $7.31, respectively, or consider a buy stop given a close above its quarterly pivot at $9.49.
Fundamentally, the stock appears to be "too cheap to ignore," with a P/E ratio of 6.87 and dividend yield of 6.47%, according to Macrotrends. Technically the stock has been below its "reversion to the mean" since the week of Dec. 11, 2015.
Ford has been stabilizing so far this year. The stock closed Thursday at $9.10 up 19% year to date and in bull market territory 22.8% above its Dec. 26 low of $7.41, which is within my current buy zone. The stock set its 2019 high of $10.56 and is now in correction territory 13.8% below this level. Longer term, the stock traded as high as $32.24 in October 1999, then traded as low as a buck a share in November 2008. The stock is thus consolidating this range. Keep in mind that despite this serious crash, Ford refused a government bailout.
I have been an owner of Ford automobiles for many years and I have been happy with both performance and service. Recently as autos added more features including artificial intelligence, I have had some issues.
In 2017, my 2004 Lincoln Town Car became haunted. The alarm would go off in the middle of the night without cause. Then, even when driving, the inside lights would go on and off and the locks would engage and disengage. After a so-called $600 fix, the issues returned in two weeks, so I traded it in for a 2018 Lincoln Continental.
The continental was redesigned in 2017 and is loaded with even more AI. In April, I received an "Important Safety Recall." This has to do with a door latch that may not always secure. This means that a door can open while driving and the "door ajar" warning will flash on the dashboard. The Lincoln Motor Company will notify me when the repair can be made. Still waiting! In my opinion, as autos become more complex, more issues will occur.
Last year, Ford made an 80-year anniversary version of the Lincoln Continental with the old-time feature called suicide back doors that open the opposite way as standard doors. The car is about 10 inches longer. They produced only 80 of these at $110,000 and they sold out in 48 hours.
Daily Chart for Ford Motor
Courtesy of Refinitiv XENITH
The daily chart for Ford shows the formation of a "golden cross" on May 6 when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices would follow. This worked for a while as the 2019 high of $10.56 was set on July 15. Since then, it's been a challenge as the stock has been trading back and forth around its 200-day SMA now at $9.24. At the center of the chart is the third-quarter pivot at $9.49. At the top of the chart is the risky level for September at $11.11. At the bottom of the chart are the second-half semiannual value level at $7.59 and the annual value level at $7.31.
Weekly Chart for Ford Motor
Courtesy of Refinitiv XENITH
The weekly chart for Ford Motor will be positive if the stock ends the week above its five-week modified moving average of $9.35. The 200-week simple moving average or "reversion to the mean" is at $11.15. The stock has been below this key moving average since the week of Dec. 11, 2015, when the average was $14.20. The 12x3x3 weekly slow stochastic reading is projected to rise to 28.43 this week up from 25.71 on Sept. 13.
Trading Strategy: Buy weakness to its semiannual and annual value levels at $7.59 and $7.31, respectively, or on a buy stop on a close above its quarterly pivot at $9.49. Sell strength to the "reversion to the mean" at $11.15.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play.
The weekly level changes each week. The monthly level changes at the end of each month, the latest on Aug. 30. The quarterly level was changed at the end of June.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.