Ford Motor (F) - Get Report emerged as a market leader in 2010, rising nearly 70%, thanks to major missteps by key competitors and an improving world economy. But things have gotten harder for the pride of Motor City since the calendar flipped into January: The company reported a shortfall in fourth-quarter earnings per share, and a more typical automotive market has returned.
Part of the blame goes to
, which returned to life in November with a massive initial public offering that lifted the company out of bankruptcy. Ford can also thank
for a second dose of reality, as Toyota's safety woes finally receded from the headlines, and sales began a slow recovery back up to historic norms.
Let's take a detailed look at Ford's and General Motors' technical positioning, to see which automaker is best positioned for higher stock prices in 2011. I already covered Toyota and other foreign manufacturers in a
. It now looks like I was too conservative in that piece, because the Japanese auto giant has already risen 15% this year.
You'll note that Ford has a longer charting history, because the General Motors IPO forced us to bury that company's old chart and look solely at price action since November. This is a disadvantage in long-term forecasting, but not as much as you might suspect, because the elimination of overhead supply, which was massive in the old company, is no longer a driving force in price development.
Ford went vertical in 1997, rising out of a three-year basing pattern near $13 (red line) and rocketing to an all-time high. The uptrend continued into the middle of 1999, when the stock finally topped out at $38.83. It then entered a steady decline that lasted all the way into the first half of 2003, where it turned the corner and bounced to $17.34 (red box) just eight months later.
Price action then diverged sharply from the broad market, with a secondary decline that undercut the 2003 low (blue box) at the same time that world markets were booming. Not surprisingly, the U.S. appetite for domestic automobiles was exceptionally weak at that time, because buyers were spending their home-equity wealth on exotic SUVs and all sorts of foreign cars.
It's been nothing but good news for Ford since the 2008-09 bear market, because conservative business practices left the company in far better financial shape than General Motors, allowing it to retool its product line for a more frugal consumer and to capture market share from just about every other car company that sells on U.S. soil.
The weekly chart shows a V-shaped pattern, with the stock selling off in 2008 from multiyear resistance near $9.50, bottoming out near $1 and then leaping higher. The recovery completed a round trip back to the high in August 2009. The rally then paused long enough to carve out the handle of a multi-year cup-and-handle breakout pattern.
Ford resumed its uptrend in December 2009, ticking higher in two distinct waves (green lines) that brought price into 2004 resistance (blue line) in November. The stock finally broke out in early January, hit an eight-year high at $18.97 and then stalled out. Late January earnings triggered huge selling pressure, dumping price under the breakout pivot and into a major decline.
Sadly for Ford bulls, the daily chart points to a continuation of the downside. The January shock triggered enormous distribution and a short-term low near $15. The stock then bounced weakly and rolled over, dropping back to that low in Tuesday's selloff. This is a heavy pattern that predicts a breakdown that's likely to test the 200-day moving average, currently at $14.44.
To sum things up, the stock is correcting from a strong uptrend that ended at the recovery high posted after the 2000-02 bear market. It may take stronger sales trends to overcome this mean-reversion activity. As a result, I see no reason to risk capital right now, trying to pick a bottom. Yes, there should be a buying opportunity, but it might not come until the second half of this year.
The trading range that follows an IPO contains useful technical data when examining a company that has a short public history, like General Motors. The stock opened for business at $35 (blue line) on Nov. 18, 2010, and quickly pounded out a trading range (red lines) between $33.07 and $35.99. It broke out of the range on Dec. 29 and rallied up to $39.48 about one week later.
The stock has corrected in two small waves since that time, with the decline dropping onto new support in late January and hugging that level for the last two weeks. This price action has carved the outline of a symmetrical triangle (green lines) that shows three highs and three lows. This predicts an imminent breakout or breakdown.
Bulls and bears look equally matched at this point. I am concerned that the pullback pattern looks like the fourth wave of a five-wave decline that will yield a breakdown leg down to around $34. However, let's just be guided by the triangle boundaries, with a breakout supporting a renewed uptrend while a breakdown sets up a test at the lower end of the post-IPO trading range.
At the time of publication, Farley had no positions in stocks mentioned, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
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, due out in April. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
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