We started the week with some good old-fashioned dip buying. The gap down was immediately bought and the indices are in positive territory. Breadth is still negative with around 2900 gainers to 3900 decliners but what is really notable is that the number of new 12-month lows is around 450 compared to just 30 new 12-month highs.
FAANG names are still struggling but there is some bounce action in small caps. As I've been discussing, small caps are well into some deep corrective action. It has been covered up by the major indices but this is not new action. Smaller stocks have been troubled for a while but the major indices really didn't stumble until the last couple of trading days.
If you listen to the mainstream business media you would never know it but there are some decent setups developing in some stocks. For example, my Stock of the Week, Affimed NV (AFMD) is bouncing off strong support around $4. NII Holdings (NIHD) is a good looking setup, and in the bigger caps Lilly (LLY) is acting well. Brazilian stocks (EWZ) are a hot group today but there are quite a few random charts that are interesting as they come off support levels.
One stock that is at a support level and struggling to turn up is Ford Motor (F) . For the month of September, Ford saw U.S. sales drop over 11% and there are concerns that interest rates may start to impact new car sales.
Ford is a classic cyclical company that is selling with a very low PE of just 6 on trailing earnings, but EPS is estimated to drop 25% this year and increase just 2% in 2019. The problem is that there are concerns that the cycle is turning down and that the slowdown is not yet reflected in estimates. Ford may look cheap with this low PE but that is always the case with cyclicals as the cycle turns.
If you are interested in bottom fishing a stock like Ford, watch for some indication that the lows are holding. Currently that is not the case. Support is precarious at best and the stock will need to move quite a bit just to break the recent downtrend. If you have a very long-term time frame, Ford may be a value but it's dead money currently.
