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My indicators are now giving bearish readings for the third week in a row and, while we typically see a bullish surge heading into a new month as fund managers allocate new capital, that hasn’t been able to provide much of a lift for stocks over the past week.
We’ve also had some sharp drops in stocks that reported earnings below expectations. Tesla Inc (NASDAQ:TSLA), which is usually one of the names pushing the broad market higher, dropped 6.8% yesterday on its earnings miss, although stocks like Alibaba Group Holding Ltd (NYSE:BABA) and Amazon.com, Inc. (NASDAQ:AMZN) have performed well following their earnings.
In general, the number of advancing stocks versus the number of declining stocks is starting to shrink, and that is one of the reasons why the Dow Jones has been outperforming the S&P 500 and Nasdaq, as it is a price-weighted index rather than a market-cap weighted index. So the market has been rising on very narrow leadership, with the mega-cap stocks doing much of the heavy lifting.
Add it all up, and this is a good market for a bearish trade — particularly in one of the companies that hasn’t been able to hack it in terms of earnings. That’s certainly the story for Mattel, Inc. (NASDAQ:MAT), so today I am recommending MAT puts:
Buy to open the MAT Jan (2018) 13 Puts (MAT180119P00013000) at $1.00 or lower.
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