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Today, we are opening a new bearish trade on General Motors (NYSE:GM). GM kicked off the summer with a stellar jump higher, as share prices were boosted by the company’s announcement that it was bringing SoftBank in as a partner in its plans to commercialize it autonomous vehicle unit.
Unfortunately, traders haven’t been able to focus on the “autonomous” future of the company because of the escalating trade war between the United States and China. In an attempt to hit the heart of “Trump country,” China has targeted the automobile industry by slapping additional tariffs on auto imports.
It used to be that China would impose a 25% tariff on all auto imports, regardless of their point of origin. However, on July 1, China changed its auto tariff structure. For European and Japanese auto-makers, China dropped its tariff rate from 25% to 15%, making it much less expensive to buy European and Japanese automobiles in China.
For U.S. auto-makers, on the other hand, China raised its tariff rate from 25% to 40% — making it much more expensive to buy U.S. automobiles in China. If these tariffs remain unchanged, U.S. automobile sales are bound to drop dramatically in China. This will crush Wall Street’s growth expectations for the company.
After a disappointing earnings announcement in late July, GM is completing its second bearish continuation pattern (a bearish “wedge”) in the past two months as traders continue to lose confidence in the stock. We are looking for GM to drop back down to its March lows below $35 during the next few weeks.
‘Buy to open’ the GM September 21st $35 Put (GM180921P00035000) for a maximum price of $0.85.
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