NEW YORK (Real Money) -- It may be time to put any bullish view on auto stocks into reverse. Ford Motor (F) has really struggled over the past three months. While some may love the near 4% yield, it is about to become even more attractive. Despite its struggles, Ford is still flat year to date. And it has underperformed compared to the S&P 500 -- not the end of the world, but if we look closer at recent price action, continued concerns are justified.
Ford has been in a clear downtrend since March highs. Recently, a bearish price channel developed providing very short-term swing trading opportunities off the top and bottom of this channel. This action has led Ford to fill the small gap left from the beginning of February. In theory, Ford should have at least bounced off that gap fill, but that isn't what we are seeing. Instead, price has broken below the previous gap.
I still see a possible bounce back to $15.40, but anything beyond that would be a gift for those stuck in a long position and needing an exit or a point to enter a hedge position. The only real driver I can see for bulls is the Relative Strength Index. Even as price is making new lows, the RSI is holding lows from the last month. Unfortunately, we can't say the same for the slow stochastics. It is a bit of a reach to get too bullish, though.
Note the moving average envelopes. I've included the 20-day exponential moving envelopes at both two standard deviations and three -- what we see if the stock really moves once outside the EMA (20, 3.0). Also note that straddles are a very attractive plan when price closes right between these two envelopes. We aren't at either point yet, but one other appeal for the bulls is if Ford closes on, but not under the EMA (20, 3.0). From that point, we've seen solid short-term bounces. It is important to note all the bounces except for one were rejected on a closing basis at EMA (20, 2.0). This supports the thesis if there is a bounce; then, if the stock gets into the $15.50 to $15.60 area, selling call bearish call spreads would be an attractive play. Once the call spreads are sold, a trader would hold them until expiration or stop out if Ford closed above EMA (20, 30.0).
Overall, shares are heading down in the $14.40 to $14.50 area, which would be the natural downside expansion if the moving envelopes are breached. I will use the bearish call spreads on a bounce. On the bullish side, there isn't enough evidence to warrant playing a bounce. The downside risk feels too great for the potential reward any bounce might offer.
Editor's Note: This article was originally published at 11:20 a.m. EDT on Real Money on June 4.