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This morning I am recommending a bearish trade on ABM Industries, Inc. (NYSE:ABM), a provider of facility services like parking, janitorial services and building and energy solutions.
I said last Friday that rallies during bear markets can be much steeper and stronger than you might expect, but they should not be trusted.
On Dec. 18, ABM announced a yearly dividend increase from $0.70 to $0.72, a 2.9% increase. Generally, a dividend increase indicates confidence in the growth of earnings in the future, and that likely contributed to the huge post-earnings rally on Dec. 19.
Looking at a chart of ABM’s performance before its recent earnings announcement, the stock had been making lower highs. Then the stock sold off very quickly before earnings, and rallied just after.
I think this rally was too much too fast, and the market trend is certainly to the downside right now.
Last Friday, ABM tapped it’s 200-day moving average (MA) before closing lower for the day. If the stock’s 200-day MA continues to act as strong resistance, it should send prices lower over the coming week.
I’m expecting the gains of its Dec. 19 rally to be erased in the near term, and I think this cheap put option is going to pay off as the stock falls back below $30.
Buy to open the ABM Industries Incorporated (ABM) Apr 18th (2019) $25 Puts (ABM190418P00025000) 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.