Ford Retraces Lower Following Warning Over Lineup: The Bull, Bear Case For The Stock

Ford Motor Co F was trading slightly lower on Thursday after dropping more than 2% on Wednesday when the company’s product development chief Jim Baumbick warned that “dramatic reductions” in the complexity of Ford’s vehicle lineup will begin next year.

Shares of the legacy-turning-electric vehicle manufacturer have declined over the last two trading days after topping out at $12.85 on Tuesday. The decline has come on declining volume, which suggests the stock is undergoing a period of consolidation.

The consolidation, which came after Ford surged 15% between March 24 and Tuesday, appears to be taking the form of a bull flag pattern on the daily chart.

The bull flag pattern is created with a sharp rise higher forming the pole, which is then followed by a consolidation pattern that brings the stock lower between a channel with parallel lines or into a tightening triangle pattern.

For bearish traders, the "trend is your friend" (until it's not) and the stock may continue downward within the following channel for a short period of time. Aggressive traders may decide to short the stock at the upper trendline and exit the trade at the lower trendline.

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The Ford Chart: Bullish traders will want to watch for a break up from the upper descending trendline of the flag formation, on high volume, for an entry. When a stock breaks up from a bull flag pattern, the measured move higher is equal to the length of the pole and should be added to the lowest price within the flag.

• The measured move of Ford’s potential bull flag is about 15%, which suggests the stock could soar up toward $14 on a break up from the pattern. If that happens, Ford will regain the 200-day simple moving average as support, which would suggest a new bull cycle is on the horizon.
• The bull flag will be negated if Ford closes a trading day below the lower trendline of the flag pattern or if the flag falls more than 50% down the length of the pole. If that happens, the bearish may gain momentum and drop Ford down toward the $11 mark.
• Ford has resistance above at $12.79 and $13.55 and support below at $11.99 and $11.17.

Photo: Shutterstock.