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My indicators are giving pretty decent sell signals, a mild downgrade from neutral readings just previously, despite the resurgence we saw in the major indices on Thursday and Friday.
Since hitting resistance near its all-time high the previous week, the S&P 500 has traded lower for the most part. And emerging market indices are down by as much as 22%, so while the major indices in the United States do remain fairly near their highs, a lot of individual sectors and commodities are not doing nearly as well. The recent rise in the strength of the U.S. dollar is probably the main factor.
While the latest gross domestic product (GDP) showed a reading of 4.1%, that will likely come back down to 3.1% or 3.2% over the next few months. That’s still very strong, though, and when combined with the continued decreases in unemployment, I think the Fed is going to feel more comfortable raising rates.
Also, we’re within the period between August and September, which has historically been a bearish stretch of time for the market. Markets have a tendency to bottom out during this timeframe, so I still think it’s wise to be defensive right now.
Just as I’m always looking at the technical picture for the broad market, I’m also looking at individual stock charts for my trades. In that vein, today I’m recommending a bearish position on Children’s Place Inc (NASDAQ:PLCE) ahead of earnings later this week:
Using a spread order, buy to open 1 PLCE Sept. 21st $125 put and sell to open 2 PLCE Sept. 21st $115 puts for a net debit of about $0.80.
Note: There are several September expirations available for PLCE options. Be sure you are opening the monthly options that expire on Friday, Sept. 21st, 2018.
A ratio debit spread is simply a way to lower the cost of buying options, as the two option(s) that you sell to open (short) helps offset the cost of the option that you buy to open. Therefore, this ratio put debit spread is a way to lower the cost of establishing a bearish put option trade. Many brokers will require the use of margin and/or a set amount of reserved capital and/or a margin account to execute a debit spread; contact your broker directly for specific requirements.
If PLCE gets down to $105, I’d recommend exiting the trade, as that’s the breakeven point for this position.
Children’s Place, in my opinion, from a technical point of view looks like it’s going to decline. It was down about 6 points on Wednesday. And this is a low-cost trade, which puts us in a good position to turn a quick profit on another collapse.
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Ken Trester is editor of the popular Maximum Options program. 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.