Ford Motor's shares fell over 13% to a near six-month low on Thursday after the automaker missed second-quarter profit estimates, struggling with quality-related costs and intense competition in its EV business. This drop is disappointing for investors, who had seen Ford's shares rise from $11.50 and approach resistance at $14.75 during a summer rally. The pullback confines the shares to a trading range that has persisted for nearly two years ($10.11-$14.74). This situation illustrates why we maintain a Neutral Yellow Zone in our matrix and emphasize the importance of buying positions that are high up in the Favored Green Zone, especially when the entry level is near resistance and trade risk/reward metrics are poor (i.e., low upside to resistance and high downside to support). The significant decline on the Relative Strength (RS) chart (see arrow) now places it deep in the Unfavored Red Zone at #97, down 53 spots yesterday and 38 for the quarter. Shares are now down 23.30% on the week and 13.24% in the past year, while the S&P 100 Index is up 9.94%, resulting in an opportunity loss of 23.18%. To analyze trading ranges, we can use the candlestick chart dating back to 2015. After breaking out of a prior range of approximately $7-$9 that lasted from 2015 to 2021, Ford's shares surged to $22 before settling into a new range of $10-$15. Despite several attempts to break out in recent years, the stock has faced distribution around the $14-$15 level. Although the RS chart improves and turns Neutral Yellow, the stock often fails and falls back into the Red Zone. A meaningful breakout above $15, coupled with a strong rally in the RS and entry into the Favored Green Zone, will be necessary before Ford can target its previous long-term resistance of $22.
Examining the Point and Figure chart reveals more precise ranges, with support at $10.11 and $9.16, initial resistance at $12.09 (3-box reversal), and top resistance at $14.74. Overall, the chart looks decent, and if support holds, brighter days could be ahead for Ford Motor Company. Deep value/trap investors (DON'T) will no doubt find it tantalizing to buy at the $10 support level (with a stop), for a favorable risk/reward ratio on this range-bound stock. With a SMAX score of 7 out of 10 (a near-term indicator comparing an asset against various asset classes), Ford is showing strong short-term performance across all asset classes, even after recent market fluctuations.
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