Here is one of my better calls, also one of the more unbelievable ones. First observed in Oct. 08 this is a very clear expanding diagonal. Invariable they return to their starting point, in this case $9.60 or so. That, by the way, is a minimum as I pointed out in my May 9 blog. Over last years year-end I fell asleep on this one only to notice that it had traded at about $1 at the low! Ultimately this one can go to $15/$17 where the 4th of precious degree resides. We bought it at about $3.30 and, as always, sold too early.

Lets have another look at Ford, just to make sure we got it right. Here is BigChart for the last few years.

This particular pattern is a “diagonal”in EW terminology; in plain English it is an expanding wedge. It occurs always in a 5th wave position (or C in a correction). What it tells you is that things have gone too far and too fast and hence one should expect a violent (relatively speaking) reversal, invariable back to where the pattern started or further. All legs within the pattern must be 3’s (sometimes hard to tell as there are irregular corrections which make things look as if they are 5’s) Below is the “model”once again.

Notice that all the waves are pretty well identical except for wave 4 which is irregular in Ford’s case and not in the model. Otherwise everything is as it should be. This would allow a rise to about $7 before a serious pull-back should occur, but that is fiddling in the margin. Keep your eye firmly on $9.60+ as a minimum.

One other thing that supports Ford this time is the “guideline of alternation”, it is not a must but more often than not things reverse themselves the second time around. During the 1930 Ford lost money and GM and Chrysler did not. Ford dropped from #1 to #3 , GM and Chrysler went to #1 and #2 positions respectively. Ford was pedantic and clung to outdated ways of doing business, a description that now better fits GM. By the way, from 1929 to 1932 vehicle production in North America dropped from 5.4 mln. to 1.4 mln., down by about 75% This time around the numbers are 16 mln. to 10 mln. give or take, which is slightly more than 30%. So Ford may not be a hold forever, on the other hand, it could go to about $15 just to retrace the entire 5th wave down, also very common.

OK, so us nervous Nellies should get out <$6.00 . As it happen it traded exactly at $6 this morning so you are presumable out; From 3.75/4.00 that is 50% so we chalk it up as 30%. By the way, I do think this stock could go to $9.75 and may buy it again if I can better assess how it goes.

On a log-scale Ford is a little easier to count. We should reach $6.50, roughly, before wave 4 takes us sideways for a while. For those that are a little nervous, selling above $6 might not be a bad idea.