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This morning I’m recommending a bearish trade on the Alaska Air Group, Inc. (NYSE:ALK), the airline holding group based out of Washington state.
Market breadth had been running stronger than usual for the first two months of 2019, with many more stocks making new highs than new lows. But that ratio has now turned lower, and far fewer stocks are trading above their major moving averages now than they were just a few weeks ago.
The S&P 500 index closed below its 200-day moving average yesterday for the first time since mid-February. The index ended off of its lows for the day, which is somewhat encouraging, but it’s still possible that we could see a deeper pullback towards the rising 50-day moving average near the 2,670 level.
Daily Chart of S&P 500 Index (SPX) — Chart Source: TradingView
After the sharp run higher to start the year, many of the investors who were extremely bearish in late December turned extremely bullish. And as I’ve mentioned before, when everyone starts leaning towards one side of the bull/bear spectrum, that’s when the market usually turns around and heads the other way.
To be clear, I am still bullish in the long term, and I do think the major indices will move to new all-time highs eventually. But for now, at least, the market is in a corrective mode. I’ve picked a bearish trade on ALK because the company is in a particularly vulnerable sector.
Transportation Stocks are Weak Right Now
Energy stocks have been performing well, but the transportation sector is struggling. You can see the sharp selloff in the transports in the chart below.
Daily Chart of Dow Jones Transportation Average (DJT) — Chart Source: TradingView
Airline stocks in particular are having trouble, and since the transports can sometimes give an advanced warning of what’s to come in the general stock market, we’ll want to see improvement in that market sector before getting back on the bullish bandwagon.
ALK Set a New 52-Week Low
Yesterday, ALK set a new 52-week low at $55.20. The last time the stock was at these levels was 2016, and a positive earnings report helped send the stock higher. ALK missed earnings per share (EPS) estimates in January by $0.49, with EPS at $0.19.
Daily Chart of Alaska Air Group, Inc. (ALK) — Chart Source: TradingView
ALK could rise in the lead up to its next earnings report, but that isn’t until April 22, after market close. In the meantime, general weakness in the sector could push the stock lower, and I’m recommending a put option just in case.
Buy to open the Alaska Air Group, Inc. (ALK) July 19th $50 Puts (ALK190719P00050000) at $1.75 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.
