The Road Ahead for Automakers is Not Only Uncertain, but Near-Term Bearish
Ford Motor Co (F) announced today that they are extending their production halt until mid-April. However, as timetables keep getting pushed out as the number of cases grows, it seems likely that is an optimistic number. Ford is teaming up with GE Healthcare to make ventilators at a Michigan plant using 500 paid UAW volunteers. The plan is to produce 50,000 ventilators by July 4.
While the near-term production timetable is clearly uncertain, one area that has hurt auto manufacturers has been the Obama-era mileage standards. The standards placed manufacturers, like Ford, in the position of having to produce more energy efficient and electric vehicles that the company has struggled to sell. However, the Trump administration plans to unveil new mileage standards through 2026 that lessens the burden that many automakers are experiencing.
Ford has been having troubles for some time as the price fell from around $10.50 to around $8 before the virus began to take hold in the U.S. However, as the crisis worsened and the prospects for Ford began to dim, the price fell to as low as $3.96 in March.
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It was about this time that Ford suspended its dividend to conserve cash. Shortly thereafter, the price of their shares spiked to a high of $5.87 before falling back the last few trading sessions. With a declining volume trend as the price was falling, it looked poised to make another leg higher. Today, that seemed to change as the price closed at the low of the session on increased volume.
The pattern that has been forming is similar to a bear flag, with today being the confirmation day. The near-term expectation is for the price to retest the March low.
Option traders may want to consider a 15 MAY 20 5/4 long call vertical for around $0.43. This provides a maximum gain of $57 a contract or a 132% gain if the stock closes below $4 in 45 days. Consider closing early if it can be sold for $0.80 or more.