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Recall that old Wall Street adage: Buy on the rumor; sell on the news. On the anniversary date of the October Great Correction of 1987, Ford Motor Company (NYSE: F) didn’t do much today, even after the UAW voted its approval of the new contract.
Fact is, Ford stock had already broken out of the 5-day high-low price channel on October 4th and rose as high as 11.93 on Tuesday, the day of the final vote by the UAW rank and file.
Today, Ford stock opened near even at 11.77, but closed lower today at 11.56. For the record, the 9.05 low of October 4th now stands as major support that dates back to the 6.61 low of October, 2009. The level of upside resistance is still the 16.18 high from April, 2011.
The UAW Contract Effects on Stock Fundamentals
Ford needs to contain costs, especially labor costs, in order to be competitive. After all, unlike Chrysler and GM, Ford did not take any government bailout, which means it did not dump its massive bond debt obligations either.
That is why the company favors bonuses over raises to hourly rates. And now that the news of the new 4-year contract between Ford and the UAW has been approved, we can see details of the new contract.
The first major point for the workers is the $6,000 signing bonus. In addition there is a $1,500 lump sum cost of living bonus; but that’s not all.
Ford will create almost 6,000 new jobs around the country, and promised to invest over $16 billion on new product development by 2015. Fact is, $6.3 billion is going to prepare various American production facilities for future models.
There were a number of plant decisions, but one key plant addition in the new Ford-UAW labor contract stood out. It is the Flat Rock, Michigan plant, which currently serves as the home of the Ford Mustang and the next generation Mustang. It will also morph into a second source for the next generation Fusion production.
Stock Chart Analysis
The 50-day moving average (dark red) is still below the 150-day (black) moving average, which means the techncial position is still bearish, but the 50-day MA is starting to rise.
When the market doesn’t immediately respond to good news there can only be a few reasons. One is, traders need time to digest the net effect on future earnings. Second is, uncertainty about the general market still rules.
Frankly, I opt for that last one; but that’s just an opinion based on what I normally see with price dynamics when news comes out.
I wouldn’t be surprised if Ford stock made a statement tomorrow, but that general market is mighty powerful. Another factor is, Ford still has all that debt on its books; and while the new contract will help stabilize the future outlook, earnings require time to accumulate.
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Full Disclosure: At time of publication, Sherosky, creator of the auto sector charts for TN, is neither long or short with the mentioned stocks or futures, though positions can change at any time. None of the information in this article constitutes a recommendation, but an assessment or opinion.
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About the Reporter: After 39 years in the auto industry as a design engineer, Frank Sherosky now trades stocks, futures and writes articles, books and ebooks like, "Perfecting Corporate Character," "Awaken Your Speculator Mind", and "Millennial World Order" via authorfrank.com. He may be contacted here by email: [email protected] and followed in Twitter under @Authorfranks
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