Trade of the Day: eBay (EBAY)

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Although last week was fairly bullish, we are still in the midst of a trade war, and it seems to be intensifying, so we have to stay concerned about that. I’m not a big believer in trade wars, to say the least, but I do think the odds are in favor of the United States coming out on top of this economic battle. The main reason I think that will be the case is that the U.S. is not a big exporting nation.

Instead, the exporting nations, like China, are going to be the ones that are going to suffer the most, and eventually they’re going to have to try to settle this situation with the U.S. Judging by what the markets are telling us, it seems the U.S. is clearly winning the trade war so far, as U.S. markets are at or near all-time highs, while the Shanghai Composite Index (SHCOMP) has already fallen by about 20% this year.

Of course, the U.S. markets still have some of their own problems to deal with. Due in part to the trade war and the booming American economy, among many other factors, consumer prices are rising at the fastest rate in five years. Additionally, the yield curve — the spread between short-term and longer-term interest rates — has been getting flatter and flatter, and it is probably going to become inverted, which happens when short-term rates are higher than longer-term rates. That is a phenomenon that has preceded economic recessions in the past, so we need to remain cautious at this time.

With that in mind, I’m recommending a new bearish trade today on a stock that is already showing weakness in order to add some portfolio protection. Shares of eBay (NASDAQ:EBAY) have been trading below their 50-day and 200-day moving averages since mid-June, and I’m expecting a further drop towards the recent lows just below $36 in the coming weeks.

Buy to open the eBay Inc. (EBAY) Sep 35 Puts (EBAY180921P00035000) at $0.70 or lower.

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InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.


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