There is no denying, U.S. auto sales have been off the charts, with Sept sales reported last week the highest monthly total since 2012, and Ford (F) in particular posting a massive monthly increase:
Ford’s total sales rose 23 percent to 221,599. Ford-brand SUV sales increased 27 percent, the best in 12 years, while trucks sales increased 23.2 percent.
The combination of low interest rates and low gas with decent incentives has resulted in strength in the U.S. and Europe, offsetting some weakness in China. But here is the thing, if the disappointing U.S. September jobs data, and the Aug revised lower tells us anything, it’s simply that the U.S. is not immune to global economic weakness.
Shares of Ford are up almost 10% since the start of the month, after closing down 18% in Q3, and still down about 4% on the year. The six month chart below shows the recent range, the double bottom bounce at $13, and the stock today taking a pause at its 200 day moving average and prior breakdown level at $15:
On a longer term basis though, regular readers will recognize the ominous chart pattern the triangle of death:
[caption id="attachment_57543" align="aligncenter" width="600"]
Ford 4 yr chart from Bloomberg[/caption]
The stock has come back to its downtrend, and now looks vulnerable for a re-tracement back to support at least until $14 and possibly the prior lows near $13. Ford is set to report Q3 earnings on October 27th. With monthly sales out of the way, we expect a good Q3, so it will be Q4 guidance in focus.
Ford ($15) Buy Nov 15 / 13 put spread for .52
-Buy 1 Nov 15 put for .65
-Sell 1 Nov 13 put at .13
Break-Even on Nov Exp:
Profits: of up to 1.48 between 14.48 and 13, max gain of 1.48 at 13
Losses: up to .52 between 14.48 and 15, max loss of .52 cents above 15.
Rationale: The news has been very good, but until very recently the stock has acted very poorly. The stock’s recent bounce could already incorporate any additional good news on their earnings call. From a purely technical basis, the bounce back to the downtrend offers a good defined risk short entry.