It may have been the strongest July for car sales since before the auto crisis, but one noted analyst is sounding the alarm.
In an interview with Reuters, Morgan Stanley auto analyst Adam Jonas said the auto industry is in “bubble territory” though he doesn’t expect demand to diminish in the next couple of years.
So is there really a bubble?
Gina Sanchez, founder of Chantico Global, agrees with Jonas that car sales are getting effervescent because of the Federal Reserve’s loose monetary policy over the past few years. “New York Times columnist Neil Irwin called it ‘The Everything Bubble,’” said Sanchez, a CNBC contributor. “There really isn’t anything that hasn’t been touched by easy money. And auto is definitely a part of that.”
After the financial crisis helped spawn an auto crisis, buyers held on to their cars longer. Now as the economy modestly recovers, buyers are coming back to replace their old vehicles, lured in part by relaxed lending standards such as low FICO scores. “GM is getting down into the subprime space,” Sanchezsaid.
“I do actually think we could be headed for a crunch down the road,” she said, possibly stemming from “too much supply combined with the fact that rates eventually are going to rise.”
But when it comes to stocks, shares of the largest U.S. automaker may be far from bubble territory, according to Ari Wald, head of technical analysis at Oppenheimer & Co. He sees $18 as a critical level and the stock is currently more than a buck below that price.
Ford traded briefly above $18 last month and October 2013, but it hasn’t spent more than a month above that mark since 2001.
“That’s really the key neckline,” Wald said. “If you could break above $18, you’re talking about what could be a major move to maybe $27 over the long term. And I think as long as Ford’s above its 200-day moving average, you can play for that breakout.”
Ford’s 200-day moving average is a few pennies near $16.40 per share, a level that would signal a major change in direction should the stock trade below it, according to Wald.
“I’m looking at $16.40 for support but these are the days to build a position; I think you can buy weakness,” Waldsaid. “If it breaks below there, I’m wrong. Get out of the position.”
To see the full discussion on the auto industry and Ford in particular, with Sanchez on the fundamentals and Wald on the technicals, watch the above video.