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Today I am recommending a bearish trade on the Louisiana-Pacific Corporation (NYSE:LPX), a North American manufacturer of building materials and products.
The large-cap industrial stocks of the Dow Jones had been leading the charge last week, partially due to the new trade agreement between the United States, Mexico and Canada. The index did fall slightly at the end of the week, and I’m still concerned about the trade situation with China, as that country is mostly likely not going to concede to the U.S., at least not anytime in the near future.
Before the trade deal agreement was made, the small-cap stocks of the Russell 2000 had been leading the market because they were perceived to have less international exposure, but that index has not made a new high since late August.
It really took a hit last week as the Dow hit a new all-time high, so it appears that a lot of the gains that were made in the small-caps are now being shifted into the larger multi-national companies of the Dow.
As far as the U.S. economy goes, it is really firing on all cylinders. This is the best economy I’ve seen in a long time, if not ever. However, the market is a discounting mechanism, meaning that it tells you what investors expect to happen in the future, not what is happening now.
It appears that the market is pointing to the fact that economic growth is going to lead to inflation, which is not good for risk assets like stocks. With these factors in mind, I am recommending a bearish trade on the building materials manufacturer LPX.
Buy to open the Louisiana-Pacific Corporation (LPX) Feb (2019) 23 Puts (LPX190215P00023000) at $1.00 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.