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dgodfrey
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Registered Investment Adviser Global Trend Following Market Neutral Investing Since 2003
My blog:
Trends for Profit
  • Ford Shares Poised For New Uptrend 0 comments
    Aug 21, 2012 7:14 AM | about stocks: F

    Are Ford's shares beginning a new positive trend? I believe there is a reasonable chance of that. I have organized my comments in three categories: Trend, Liquidity and Valuation.

    Trend:

    Recently, Ford (NYSE:F) shares have climbed above their 50 day moving average. From a trend following perspective this signals the beginning of at least a short-term positive phase (say a few weeks to a month). On Friday (August 17) there was a second close above that average, adding a bit more confidence to that view.

    Prices will need to climb a bit further to signal the possibility of a longer term positive trend. The good news, in the case of Ford stock, is that the additional increase in price needed to signal a longer term uptrend is not too large, say about 10% or about $10.60/share. If the foregoing short-term trend holds and builds upon itself some, then the $10.60 level might be reasonably attainable. Several closes above the $10.60 level would signal the beginning of a pretty positive long-term outlook from a trend following perspective.

    Liquidity:

    By liquidity what I am referring to is the willingness of current shareholders to hold shares. If current holders are holding shares tightly, demonstrating a highly elastic response to falling prices and a highly inelastic response to rising prices, then share prices are more likely to rise. I have certain proprietary measures that provide some indication of prospective changes in the willingness of holders to sell shares. In the case of Ford, I have been anticipating a reduced level in interest of selling by holders. Other measures that I use suggest that a reduced willingness by holders to sell is now actually occurring. Further, looking ahead, I anticipate that existing holders will continue to want to hold Ford shares relatively tightly.

    Valuation:

    There has already been plenty of discussion about the "cheapness" of Ford's stock, especially since its share price has fallen so sharply recently. Based on the traditional measures of P/E, P/B and expected growth, it would seem that Ford shares are no longer over-priced given the company's profitability and financial structure. Recently, two of the three major rating agencies have upgraded Ford's debt to investment grade. S&P has not yet made that upgrade, saying it wants to see improved profitability. Further improvement in profitability and/or an upgrade from S&P, could serve as a valuation catalyst to the company's share price.

    I recently purchased Ford stock. This decision was based on my assessment of the trend, liquidity conditions and the strength of Ford management.

    Risk Management:

    As a trend follower, if an unfavorable trend in Ford's stock develops from here, I will follow selling or risk management rules to manage the exposure. One challenge that may lie ahead for holders of Ford stock is the current positive tone in the broader markets. Investor sentiment is becoming extremely positive, perhaps too much so from a contrarian perspective. Should the broader equity markets weaken, then Ford's stock price might also be challenged. In such a case, hedging the broader market risk inherent in owning Ford stock would be considered using a beta of about .90.

    This article is not investment advice. Readers should consult their own investment and tax advisers before making any decisions about Ford stock. Readers of this article are therefore solely responsible for their own trading and investment decisions.

    Disclosure: I am long F.

    Additional disclosure: F is included in the Model Portfolio of one of the newsletters that I publish for clients and members of the investing public.

    Themes: long-ideas Stocks: F
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