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This morning I am recommending a bearish trade on the Aptiv PLC (NYSE:APTV), a global technology company that designs and manufactures car components.
APTV is up nicely so far in 2019 after falling in December, as positive news about trade talks with China has bolstered the stock. Bloomberg reported that China will increase auto purchases this year as a part of these negotiations.
APTV would benefit if trade talks with China continue going well, but in the short term, I have my doubts.
A Slowing Chinese Economy
The news from Apple (NASDAQ:AAPL) lately is not painting a very good picture of the global economy.
AAPL recently lowered its revenue guidance primarily due to weaker iPhone sales in China. It’s also been reported that Chinese retailers are slashing prices on iPhones in order to sell more of them. This could simply be because the new iPhones are so expensive, but it is also a sign that the Chinese economy is slowing.
If APTV’s recent rally really is because of good news from China, investors may find themselves out of luck as its economy slows down.
V-Shaped Bottoms Are Rare
From a technical perspective, APTV is due for a retest.
The S&P 500 has made a strong “V-shaped” recovery. In other words, we haven’t seen much consolidation since the lows in late December. Instead, the market simply rebounded right back up to where it was when the selloff really picked up steam.
If you look at the chart below, APTV did channel sideways for a few days at the end of December, but its recovery was still very swift. V-shaped bottoms are extremely rare. It’s much more likely, in my opinion, that we’ll see the market retest the Dec. 24-26 lows before moving higher again, and APTV is in a similar technical situation.
Daily Chart of Aptiv PLC (APTV) — Chart Source: TradingView
APTV is also hovering at its 50-day moving average, where it should encounter strong resistance. There was support for the stock at $71 before December’s selloff, and I think it’s unlikely that APTV will be able to overcome that new resistance level.
For these reasons, I’m recommending a bearish put option on APTV today.
Buy to open the Aptiv PLC (APTV) May 17th $57.50 Puts (APTV190517P00057500) at $1.65 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.