Ford Is Fading; Expect More Downside

Ford (F) has been in a tight holding pattern since last Tuesday's breakdown. Back on Oct. 27, the shares were hit hard following a weak third-quarter earnings report. The stock fell more than 5% on the news after opening the session with a very damaging downside gap. Volume pacing the selloff reached its heaviest reading since last October. Since then, Ford has put in six straight lower highs while remaining inside a narrowing range. This consolidation pattern may soon give way to a new downleg.

Ford (F) Chart

Source: FreeStockCharts.com

View Chart »View in New Window »

Heading into Ford's third quarter report the stock was on quite a roll. From the late September low the stock had gained over 21% at its pre earnings peak on Oct. 26. As impressive as this move was, the rebound off the Aug. 24 spike low had stretched to 48%, pushing shares to its most overbought (MACD) reading since mid-2013 -- without question a giant move in any timeframe. Unfortunately for the bulls, the pre-earnings run, which included a string of nine straight gains, opened the gates for a volatile post earnings reaction. The disappointing news did exactly that and has caught many longs leaning the wrong way.

In the near-term, the damage from the Oct. 27 breakdown will likely take more time to repair. For the bulls this will lead to very low-risk entry opportunities. Ford's October run left behind layers of support, the most important of which sits about 2.5% below current levels. This key support zone includes the stock's January and July lows as well as both the 50-day and 40-week moving averages. A continued drift down to this area on light trade should spark buying interest. A close below $14.00 would be a clear warning sign of a deeper pullback ahead.

At the time of publication, Morrow was long F.