As a company that has manufactured automobiles since the early 1900s, Ford Motor (NYSE: F, Bullboard) needs little introduction. Aside from its eponymous line of Ford vehicles, the company also produces Lincoln and Mercury, owns a 33% stake in Mazda (OTO: MZDAF, Bullboard), and controls Volvo (OTO: VOLVY, Bullboard). In the past couple years, Ford sold its Hertz (NYSE: HTZ, Bullboard) line of car-rental locations and is in the process of selling Land Rover and Jaguar to India-based Tata Motors (NYSE: TTM, Bullboard) for a reported $2.3 billion.

While rising crude oil prices and pressures at the pump have turned consumers away from the company's line of SUVs and award-winning pickup trucks, Ford is in the early stages of a turnaround masterminded by CEO Alan Mulally. In April, total auto sales retreated 12.2% to 200,727 cars and trucks. However, while truck sales plunged 18.3%, the new Focus compact saw sales spike 43.5% from a year ago. What's more, Fusion sedan sales rose 22.4%. 

The turnaround is also apparent in the company's quarterly earnings reports. On April 24, Ford announced that it swung to a first-quarter profit of $100 million, or five cents per share, due to cost reductions in North America and strong international profits. Analysts were looking for a loss of 15 cents per share. Many analysts touted the results as proof that Mulally's plan is on track. Ford also said it bought out 4,200 hourly workers during the quarter as part of its ongoing restructuring plan.

These strengthening fundamentals are also having an impact on Ford stock. Since the beginning of the year, F has risen more than 21%, easily outpacing the S&P 500 Index's loss of more than 4%. During this time frame, the equity has enjoyed the support of its 10-day and 20-day moving averages – trendlines that F has not closed a session below since March 19.

From a longer-term perspective, F has pulled its 10-week and 20-week moving averages into a bullish cross – a technical formation that often signals further upside potential for the shares. Furthermore, Ford is now trading above its 160-week moving average. This trendline is often seen as a demarcation between a long-term uptrend and a long-term downtrend for the shares. In June and October 2007, the 160-week moving average firmly rebuffed the equity. Now, however, F could use this trendline as a key technical support level for its next leg higher.

Despite all of the fundamental and technical improvements, investors remain heavily skeptical of F. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.39 indicates that puts outnumber calls among near-term options. What's more, this ratio ranks above 93% of all those taken during the past year, indicating that options traders have been more pessimistic only 7% of the time in the prior 52 weeks.

Digging into this activity, we find that peak call activity for the June series of options resides at the nine strike, with nearly 52,000 calls in residence. On the put side, peak open interest resides at the deep out-of-the-money five strike, with roughly 58,000 contracts open.

Short sellers have also jumped on the bearish bandwagon. Following a 4% increase in the number of F shares sold short in the most recent reporting period, more than 14% of the stock's float is now sold short. This wealth of bearish bets could provide for a short-covering rally if F can extend its technical strength over the intermediate term.

Finally, Wall Street is also betting heavily against F. According to Zacks, 10 of the 11 analysts following the security rate it a "hold" or worse. Any upgrades from this pack of naysayers could help prompt an accelerated unwinding of bearish sentiment, resulting in added buying pressure for Ford shares.

by  Joseph Hargett, SchaeffersResearch.com

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