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This morning, I am recommending a bearish trade on Briggs & Stratton Corporation (NYSE:BGG), the producer of gasoline engines and outdoor power equipment.
My indicators are giving strong sell signals this week, despite the intraday recovery we saw in the major indices on Thursday.
We are now in what I call a corrective phase. After the 25% run higher in the S&P 500 we’ve seen since the fourth quarter’s lows, it was to be expected that the market would pullback.
As a reminder, my regular readers had a heads-up that a pullback was coming, as my indicators started flashing sell signals back on April 26 — just days before the S&P began to stumble.
From a technical standpoint, you can see in the chart above that the S&P 500 was able to hold above its 50-day moving average (red line) on Thursday. The index also has a lot of support at the 2,800 level.
I think the most likely scenario — assuming that we do not enter a full-blown trade war with China — is that the S&P trades down to around the 2,800 level, finds support there and then moves sideways for a while.
With so many unknowns on the geopolitical front, and with my indicators giving strong sell signals again, I’m recommending a bearish put option on this industrial stock.
A Big Earnings Miss
BGG has generally underperformed the market this year, and after its last earnings report, I don’t expect it to pick up bullish momentum. The company missed earnings per share expectations by nearly 50%, despite beating revenue estimates, and I suspect that will push the stock lower.
Daily Chart of Industrial Select Sector SPDR Fund (XLI) — Chart Source: TradingView
As you can see in the chart above, industrial stocks — as represented by the Industrial Select Sector SPDR Fund (NYSEARCA:XLI) — dropped at the start of the week. Now that tariff increases have gone into effect, I think the sector will continue to struggle in the near term.
Long-Term Downward Trend
If we turn to BGG’s daily chart, we see it is in a long-term downward trend. After its recent earnings report, the stock dropped below its 50-day moving average (MA), and that MA acted as resistance last week.
Daily Chart of Briggs & Stratton Corporation (BGG) — Chart Source: TradingView
With the trade situation looking grim in the short term, I think this bearish play is a good way to add some downside protection to your portfolio. That’s why I’m recommending this bearish put option on BGG.
Buy to open the Briggs & Stratton Corporation (BGG) July 19th $12.50 Puts (BGG190719P00012500) at $1.40 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.