Morning Comment...Ford has a lot of potential upside over the next 18 months...June 13, 2019 - BTFNow

For the first time in many, many weeks…we had a VERY uneventful day in the broad stock market yesterday. Sure, we’ve had plenty of days when the stock market closed very near the unchanged level for the day, but most of those days still had some wild swings within them. Yesterday, however, gave us a day when the stock market’s intraday chart was pretty much a flat line (after a very mild decline on the opening). In fact, you have to go back to April 29<sup>th</sup> to find a day where the S&P 500 index had a tighter one-day range than the 0.48% range it had yesterday.


That’s not to say that there was no movement at all. In fact, we did see some decent sized moves yesterday…but they just off-set one another on a broad basis. For intance, several defensive groups saw nice moves higher (led by a 1.3% rally in the utilities). However, the energy sector took it on the chin with a 1.4% decline…after WTI crude oil dropped more than 4% on the day. (It’s bouncing back this morning due to another attack in the Gulf of Oman, but there’s no question that the recent bounces in WTI have been quite feeble (and not anywhere near as strong as other risk assets). So we’ll have to see how long today’s bounce lasts.

Needless to say, Tesla (TSLA) has gotten a lot of attention recently…with its sharp decline of 50% from December to June…and its more recent bounce. However, we want to focus on the Ford Motor Company (F) this morning. Since we do not cover the stock, we cannot talk about its fundamentals in detail, but looking at the political landscape…and looking at its chart…we think this stock has A LOT of upside potential over the next 18 months. We do need to point out that we think the rally in this name probably won’t begin for a little while, but this one could/should create a great opportunity at some point this summer.

Don’t get us wrong, we understand that the fundamental outlook looks dicey (at best). Auto sales in the U.S., Europe and China are poor (with China recently reporting that vehicle wholesales fell 17% YOY in May)…and the prospects do not look particularly good (especially in Europe…where auto production has slumped 24%)……However, the political picture for the group should improve as we move closer to the 2020 election.

People seem to forget that President Trump drew an “inside straight” in 2016…when he won Pennsylvania, Indiana, Wisconsin, Kentucky, Ohio and Michigan. “Insight straights” are VERY hard to come by…and the President is going to have to win those states AGAIN if he wants to get re-elected. (People spend too much time looking at national polls. The ONLY thing that matters is the state-by-state polls!!!) Therefore, by some point next fall, the administration is going to have to do something to help the auto industry in a substantial way. (The same is true for the farmers, but that’s a discussion for another time.) Any threats about tariffs on Mexico will disappear…..Very simply, if the President doesn’t do something material to help some important constituencies in the above-mentioned states, he will have NO CHANCE of getting re-elected. Therefore, we believe he’ll “pivot” on several issues as we move towards the end of the year.

No…we are NOT basing our positive longer-term stance on Ford…SOLELY on some vague 2020 election cycle scenario! The chart in Ford looks quite compelling as well! After Ford reported much-better-than-expected Q2 earnings back in April, the stock jumped above its trend-line going back to the early 2018 highs. During its May pull-back, it came back down to that trend-line…and bounced…so it held that line nicely! Thus the fact that it held this trend-line is quite positive. (It could also be argued that it has broken above the “neck-line” of an “inverses H&S” pattern, but since its “right shoulder” did not test its “neck-line”, that’s a bit of a reach.)

Having said all this, since we are still quite cautious on the broad market, an upside break-out in Ford could be several weeks…and even a couple of months…away from taking place. However, if the stock can break above its early May highs of $10.50 in any meaningful way, it will give Ford its first important “higher-high” since 2015! In fact, if the stock’s move doesn’t come until August, a move above its May highs will also take it above its longer-term trend-line…going all the way back until 2014.

This is a long-winded way of saying that Ford seems to finally be forming a nice “base” (after declining steadily since 2014). If this “base” can be followed by further upside momentum at some point over the coming months, it should be very positive for Ford on a technical basis. Given our expectations that President Trump will step to the plate and help the auto industry as we move closer to 2020, we think the odds are pretty good that a break-out will take place in the coming months……..As always, we HAVE to wait for a break of the above-mentioned key resistance level (of $10.50) before we can raise a green flag on the stock, but the potential is certainly there. In other words, this is another example of a time when you have to look beyond the fundamentals to see some of the best potential opportunities in the market place.



Posted to The Maley Report on Jun 13, 2019 — 8:06 AM
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