|It's been a very tough economic climate for the US automakers, but apparently Ford Motor Co. (F) is in better overall financial condition than its domestic competitors. After making a major low in late November 2008, prices shot higher, rising more than 200% in three weeks, albeit from a very low price level. What's on the chart now, and what's it telling us traders?|
|FIGURE 1: FORD. Price can drop as low as $1.50 without invalidating the bullish Gartley 222 pattern, as long as the ratio of XD to AD doesn't exceed 0.786, that is.|
|Graphic provided by: Ensign Windows.|
|In Figure 1, we can see that a fairly well-structured Gartley 222 pattern (aka the butterfly pattern) is close to completion on Ford's daily chart. All of the proper Fibonacci ratios are evident, although I would have preferred to see a 0.618 figure for the AB to BC ratio. Other than that, all that this pattern really needs now is a strong daily bullish reversal bar, one with strong volume propelling it higher. If that happens, and prices haven't dropped below $1.50 at the time of such a reversal bar, then the next step is for traders to place a buy-stop order just above the high of the reversal bar, being sure to keep the risk to their accounts at a modest level. If the buy stop is filled, a stop-loss can be placed a few ticks below the low of the reversal bar.|
The initial target for these 222 patterns is usually projected to be 0.618 of the length of swing CD. If the trade were entered at, say, $1.80, the first price target would be projected at approximately $2.60, which is the 61.8% retracement of swing CD.
There are a couple of other technical clues that suggest that F can make a move higher now. For starters, look at the very bullish volume pattern (bottom pane of chart) on the launch higher from the major low; volume increased dramatically during the rise, even as it gradually declined on the subsequent corrective swings. Ford shares are also in the general area of a monthly cyclical low, another potentially bullish factor.
|Even though Ford may be preparing for a move back up, it's still vital that traders confirm that the broad markets are also in a generally bullish posture before considering an entry into any long position. In addition, given that Ford is a component of an industry group that's in the grip of a major economic downdraft, traders may also wish to deploy a more modest trade sizing strategy than they might otherwise use.|
|Title:||Writer, market consultant|
|Company:||Linear Trading Systems LLC|
|Jacksonville, FL 32217|
|Phone # for sales:||904-239-9564|
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