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Today, I’m recommending a bearish trade on Lennar Corporation (NYSE:LEN), a real estate financial services provider.
Two areas of the market that have been hit hard lately are the auto sector, including the big names such as Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM), and the real estate sector, largely due to rising interest rates.
And I don’t think the Federal Open Market Committee (FOMC)’s decision to raise the overnight rate last Wednesday to a range of 2.00%-2.25% from the prior range of 1.75%-2.00% is going to help.
While the U.S. economy is booming right now and the market is acting as though everything will be fine, there’s a lot of uncertainty. Especially because the FOMC also reaffirmed that it is on track for one more interest rate increase before the end of the year, just as I have been anticipating.
We are entering a new month, which is when large institutional money managers typically deploy new capital. Historically, the market tends to rise about 70% of the time during the first few days of a new month, so I wouldn’t be surprised to see some rallying action in the near term.
However, my outlook is mixed at this point because there are still so many unknowns out there involving geopolitics and the ongoing trade war. While there are some bargains out there, specific areas of the market, like real estate, are going to face some challenges going forward, so I think a bearish trade in is in order.
Buy to open the Lennar Corporation (LEN) Jan 2019 42.50 Puts (LEN190118P00042500) at $1.35 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.