Ford has been one of our best calls and also one of the most controversial. From $1 to almost $19 is quite a performance, more than we expected as we had $17 as the very maximum for this first round. This market seems to be “irrationally bullish” once again , to use the phrase that Greenspan coined a decade and more ago, the one time he was sincere. It seems to always and everywhere push stock prices beyond what one would reasonable expect Here is the chart.
Here is a count that may or may not be correct, but at least it seems to be perfectly valid. The $17 is, by the way, derived from the big-chart (not shown) where it denotes the level of the previous degree wave 4, the normal initial target. Notice that all 3 upward waves in this chart, 1,3 and 5 are essentially the same size in terms of vertical distance and also pretty close in terms of time spent. (Vector equal, in other words). We know from the pragmatic findings of EW that wave 3 cannot ever be the smallest, which, if your pencil is sharp enough, means that wave 5 cannot go any further.
According to the founder’s grandson who now chairs the company, there are many unknowns in the future with respect to building cars, the green ambitions that Ford has, government aid to introduce green policies and the acceptance by the public of the Volt. We know that the rational consumer, the guy with the slide-rule and a brain , that most economic theory is predicated on does not exist in reality. But just for fun lets see how far people have to depart from this guy to fall in love with the Volt. You can buy this thing for $41000. You can also buy a Corolla or even a Ford Focus for about $18000 (just to mention two), never mind that car that soon will be imported from India for $6000 or so or the Hyundai that is already available at $10000. After you add HST to the difference in price of about $22000 , the Corolla is $25000 cheaper upfront. It does about 15 km/liter so at today’s price of gas, about $1/liter, you could travel 375000 km before you break even. If you add in the effects of time-value of money, maintenance cost for a very complicated car against a very basic one, insurance etc.etc. the difference becomes much larger. Ergo, I would expect acceptance to be very low, something like that of the Prius which is far from an economic success.
We would step aside if not already done so.
F
On the left is the chart from August 27th with the green pattern as the most “’elegant” possibility. This based on the EW probability of corrective waves returning to the 4th wave of previous degree, seen here in a big chart picture.
The count is probable incorrect as there is likely a 4-5,4-5 series at the end but that does not matter here. $17 (or so) is the ideal target. The actual high was $17.42, a little above the $17 I mentioned as the max.This is possible if a triangle did occur! I suspect the stock is rising in sympathy with the GM IPO but the why of it is not entirely clear. There was a little gap just above $15 and both the RSI and MACD are turning. I would definitely stand aside here and brood on why I had not bought a truckload of this stuff. Click on charts to enlarge and move them around.
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Last May when the stock first reached $14 it was suggested that one step aside as the easy money was made and the stock could drop to about $7. Here is an update only for those that are interested in EW! Enlarge to read!
The blue was the original thought. It is an a-b-c as a minimum to get back to the top of the diagonal triangle that had preceded it. A drop back to the b wave is dead normal in that scenario hence the $7 target. Notice that a and c are of about the same size, about $7 each, and have similar structures with little triangles in the 4th wave position, a frequent occurrence. This is still a probable scenario but not the only one.
The ideal target of $16/17 was never reached so it is still possible that we have to go one higher. The most elegant count to allow for this possibility is the green one. We just completed wave 4 and are already on our way up, or wave 4 will develop into a triangle first and then we move up. As wave 3 is slightly shorter than wave 1, and as wave 3 cannot be the shortest the maximum for this scenario is < $17. Breaking the channel makes this a low confidence scenario.
Another possibility is (in pink) is that we had 5 waves into the high. This would itself be a first wave for the next major bull market. Not implausible considering the stock did drop to below $1 and has survived. As first waves are typically retraced quite deeply, often more than 62%, the $7 target is even a little optimistic but very realistic. Wave 2 should then take the form of two down legs with an intermission in the middle, i.e. an a-b-c. This seems to be the case and if c=a we would get close to the $7.
Putting all of this in the blender, the best thing to do is stay on the sidelines un till we get to $7 or one of the other scenarios becomes compelling.
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Last time we suggested that Ford had done as much as one could reasonable expect, which simple means that you go either neutral or short. We were a little early as the stock managed to make a marginally, very marginally in fact, higher high a month and a half later. Adjusting the count accordingly we put the TOP at the latest high. From there we have either completed a wave one down followed by a wave 2 correction of about 60%. Alternatively wave one is not even complete (there is no overlap so that possibility remains open ) and we are now in an incomplete wave 5 of 1. Either way the stock should trade down to the $7 level or so.
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Today the TSE met the 61.8% retracement that we have been waiting for for so long. Actually, by coincidence the S&P 500 did pretty well the exact same retracement. A few ticks here or there is always possible tomorrow or Friday but we like to take our que from Ford. As you are aware we had a potential to $14/15 where wave 4 of previous degree resides. Here is the chart;
Again on the basis of the diagonal triangle the stock needed to go at least to $9.60, beyond that the 4th of previous degree at $14+ was a logical target. We are there either by way of an a-b-c correction (implying Ford is still going under), or by way of an initial 5 –wave move for a new bull market. What now. In the most positive scenario , where this is a new bull, expect a pull-back to the triangle $11 and then to wave 4 at $7. Wave 2 could and usually does erase at least 62% of the initial impulse which would take us to around $6. In short, if still in waiting for the last possible dollar is not recommended. This despite Moody’s late credit upgrade. Ask yourself if you are a contrarian or just another lemming, when the stock was at $1 nobody would touch it, now at $14 + it is second best to sliced bread, chose your own poison.
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The other day I happened to see Mr. Wiggen on TV. Every 10 years he sticks his neck out to predict what will be the next 10 years best investment. Last time it was long gold/short the Dow Jones – which proved to be a very good trade. This year his best choice is long the Nikkei, short the US Government long bond. The guys at Agora are fiercely independent and even if they can be accused of all sorts of things like sensationalism they are definitely out-of-the-box thinkers. This 10-year call resonated well with me so here it is revisited.
I put Ford in simple because it had recently completed a pattern known as a “diagonal” or an expanding wedge. It takes stocks down ( or up, as the case may be) beyond an extreme value and therefore leads to a rather violent reversal once complete. Japans Nikkei may be close to a low but the pattern is not complete and consequently, even though I agree with Mr. Wiggen over 10 years, I do think we should go a few thousand points lower first.
Note that the 30-year bond chart is similar to the Nikkei chart, however, its down trend lasted 30 years or so whereas the Nikkei has only been at it for 20, ergo a few more years and a little lower is certainly not out of the question.
F, Long Bond, Nikkei
Here is one of my better calls, also one of the more unbelievable ones. First observed in Oct. 08 this is a very clear expanding diagonal. Invariable they return to their starting point, in this case $9.60 or so. That, by the way, is a minimum as I pointed out in my May 9 blog. Over last years year-end I fell asleep on this one only to notice that it had traded at about $1 at the low! Ultimately this one can go to $15/$17 where the 4th of precious degree resides. We bought it at about $3.30 and, as always, sold too early.
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Lets have another look at Ford, just to make sure we got it right. Here is BigChart for the last few years.
This particular pattern is a “diagonalâ€in EW terminology; in plain English it is an expanding wedge. It occurs always in a 5th wave position (or C in a correction). What it tells you is that things have gone too far and too fast and hence one should expect a violent (relatively speaking) reversal, invariable back to where the pattern started or further. All legs within the pattern must be 3’s (sometimes hard to tell as there are irregular corrections which make things look as if they are 5’s) Below is the “modelâ€once again.
Notice that all the waves are pretty well identical except for wave 4 which is irregular in Ford’s case and not in the model. Otherwise everything is as it should be. This would allow a rise to about $7 before a serious pull-back should occur, but that is fiddling in the margin. Keep your eye firmly on $9.60+ as a minimum.
One other thing that supports Ford this time is the “guideline of alternationâ€, it is not a must but more often than not things reverse themselves the second time around. During the 1930 Ford lost money and GM and Chrysler did not. Ford dropped from #1 to #3 , GM and Chrysler went to #1 and #2 positions respectively. Ford was pedantic and clung to outdated ways of doing business, a description that now better fits GM. By the way, from 1929 to 1932 vehicle production in North America dropped from 5.4 mln. to 1.4 mln., down by about 75% This time around the numbers are 16 mln. to 10 mln. give or take, which is slightly more than 30%. So Ford may not be a hold forever, on the other hand, it could go to about $15 just to retrace the entire 5th wave down, also very common.
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