Ford Trade Update: Expect Further Downside As The Stock Approaches $10

My last trade recommendation on Ford (F) was to continue shorting or holding puts from the $11.20 area.

So far, thanks to further deterioration in the euro crisis, Ford has continued it's steady downtrend towards $10 per share.

Here is a look at the updated chart:

(Click to enlarge)

This time, I've added the 100 DMA to show the recent bearish cross of the 50 DMA under the 100 DMA. Despite RSI showing an oversold indication, the stock has continued to move lower, with only moderate bullish retracements.

As I noted in the last recommendation, absolutely nothing has indicated any sort of support for the stock. For those who believe the P/E is "too cheap," I'd like to point out once again that based on my earnings prediction of about $1.25 for fiscal 2012, the stock will be trading at 9 times earnings; a healthy valuation for a classic cyclical approaching the end of its cycle.

Last year, the stock didn't stop its rather violent downtrend until $9. With (more) rumors of an imminent Greece exit from the euro beginning to swirl again, Ford's status as a consumer and credit dependent cyclical is once again likely to lead the stock significantly lower in the intermediate term.

A Greek exit could cause a complete lack of confidence in the European periphery (i.e. Spain and Italy), resulting in huge bank failures and a potential systemic crisis. With credit fueling a large bulk of consumer car purchases, further market fragility or a general crisis will result in weaker consumer spending and fewer materialized sales. Not to mention, Ford may have to shut down several European operations in order to reduce variable costs.

For those waiting for an entry point, wait for longs to absolutely capitulate, or wait until some signs of a bottom start appearing. The market as a whole is currently undergoing a major turning point, so entry here is a pretty poor gamble.

Disclosure: I am short F via August 12 puts

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