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This morning, I am recommending a bullish trade on STORE Capital Corporation (NYSE:STOR), the internally managed real estate investment trust (REIT).
With the mild rebound in the market this week, my indicators have improved slightly and are now giving bearish-to-neutral readings versus last week’s strong sell signals.
The S&P has a lot of support at the 2,800 level, which had acted as resistance throughout the fourth quarter of 2018 and earlier this year. That key level was tested on Monday and held up well.
We are still in the middle of a trade war with China, but there are some bullish signs on the horizon. I want to add some bullish exposure in case the rally we’ve seen this week continues to the upside, and I think STOR is a good target because of the market environment we’re in.
A Potential Rate Decrease
According to the CME’s FedWatch Tool, which uses the futures market to gauge target rate probabilities, there is now a 43% probability that the Fed will cut rates by 25 basis points (0.25%) to a range of 2.00%-2.25% at the Fed’s September meeting.
Looking out a bit further, traders are pricing in a 27% chance that the target rate will be decreased by 50 basis points (0.50%) to a range of 1.75%-2.00% by the December meeting.
That would be a bullish sign for the market if comes to fruition, and it would be particularly good for STOR, since REITs generally benefit from lower interest rates. STOR also beat first quarter earnings expectations according to Zacks, and it has outperformed the market this year.
Gradually Heading Higher
If we turn to STOR’s daily chart, we see it is in a long-term upward trend. The stock dropped slightly in mid-April, but it bounced off support at $31.50 and made it back above its 50-day moving average (MA).
Daily Chart of STORE Capital Corporation (STOR) — Chart Source: TradingView
STOR’s 50-day MA acted as support for the stock shortly after that mid-April dip, and the stock just broke above its previous highs around $34. It is trading lower this morning, but because of the bullish signs on the market for the real estate sector, I think STOR will eventually head higher. That’s why I’m recommending this bullish call option:
Buy to open the STORE Capital Corporation (STOR) July 19th $35 Calls (STOR190719C00035000) at $0.60 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.