Ford Short Mean Reversion May 3 2023 Case Study

If you have been following the market for a while, you are aware of certain inherent tendencies of the market. On of my favorite plays is the opening 30 minutes where extreme imbalances take place. Remember the market is all about finding balance. An equal fair price is determined by the number of buyers and sellers. When too many buyers pile on it can create irrational upward movements. This doesn’t mean extreme moves will always come back there are a lot of factors at play. This could be float size, news events, extreme catalysts or a big player that wants to load up all day long on a particular equity.

Back to Ford. For released their earning on May 2nd 2023 in the afterhours. This drove the stock price down. The next morning during pre-market buyers were stepping in and pushing the price up.

At the open there was an immediate volume surge and high amount of buying pressure.

The three main factors in playing a mean reversion is

1. Speed of the move

2. How extended the move is (based off ADR)

3. Is it running into a defined level of previous consolidation.

 SPEED OF THE MOVE

Yes, it moves very quickly in a 5 min period

Extended

Yes, it was 150% of its 20-day average daily range

Level of Resistant defined with extended consolidation?

Yes. If you refer to the image below you can see how I spotted this level to enter at nearly the top.

Short entry was tight within that range and risk was clearly defined. I would of stopped out ~.5 cents above that level.

A couple of other notes.

You have to define your universe of stock to play. Ford is a high float stock that is extremely liquid ( east to get into and out of without any slippage- refer to our glossary for these terms). This is  a high probability play due to the ammount of trader involved in Ford Stock.