Ford Motor Co (NYSE:F) gapped up slightly higher to start the trading day on Friday, in tandem with the general market that saw the S&P 500 rising over 1%.
The automaker has soared about 10% over the last three trading days, possibly in reaction to a double bottom pattern the stock formed on the daily chart.
A double bottom pattern is a reversal indicator that shows a stock has dropped to a key support level, rebounded, back tested the level as support and is likely to rebound again. It's possible the stock may retest the level as support again creating a triple bottom or even quadruple bottom pattern.
The formation is always identified after a security has dropped in price and is at the bottom of a downtrend whereas a bearish double top pattern is always found in an uptrend. A spike in volume confirms the double bottom pattern was recognized and subsequent increasing volume may indicate the stock will reverse into an uptrend.
- Aggressive bullish traders may choose to take a position when the stock’s volume spikes after the second retest of the support level. Conservative bullish traders may wait to take a position when the stock’s share price has surpassed the level of the initial rebound (the high before the second bounce from the support level).
- Bearish traders may choose to open a short position if the stock rejects at the level of the first rebound or if the stock falls beneath the key support level it created the double bottom pattern at.
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The Ford Chart: Ford created a double bottom pattern on May 12 and May 20 near the $12.15 level and on May 24 and May 25, the stock came near to that area again and bounced, causing the stock to soar higher. The price action near the $12.30 mark on May 24 and May 25 caused the stock to print a higher low, which may indicate a trend change is on the horizon.
- Ford has been trading in a steep and consistent downtrend since March 20, making a series of lower highs and lower lows. Although the stock has printed a higher low, in order for Ford to confirm a new uptrend is beginning it will need to rise up above the most recent lower high, which was printed on May 13 and $13.63.
- On Thursday, Ford regained the eight-day exponential moving average (EMA) as support and on Friday, the stock was attempting to regain the 21-day EMA. Bullish traders will ideally want to see Ford close the trading day above the 21-day EMA and if the stock can remain trading above the indicator for a period of time, the eight-day EMA will cross above the 21-day, which would give bulls more confidence going forward.
- Ford has resistance above at $14.34 and $15.51 and support below at $12.79 and $11.99.
