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This morning, I am recommending a bearish trade on Mattel, Inc. (NASDAQ:MAT), the toy manufacturer.
My indicators are giving bullish readings for the first time since April 5. However, with the S&P 500 index currently sitting near the top of its recent trading range, I am personally leaning towards the bearish camp.
MAT rejected a merger offer from MGA Entertainment, whose brands include L.O.L. Surprise, Little Tikes and Bratz dolls, and its technical picture looks weak. With the trade situation stagnating (and possibly worsening), I think a bearish play on MAT is a good way to add protection to your portfolio.
Mattel is Vulnerable to More Tariffs on Chinese Exports
The biggest concern on the market is still the trade war between the United States and China.
There were some positive reports on that front this week, but the big test will be whether or not President Donald Trump and Chinese President Xi Jinping can strike some sort of deal at the upcoming G20 meeting in Japan later this month.
There is a chance that some progress could be made at that meeting, but President Trump has already said that he would impose tariffs on another $300 billion of Chinese exports to the U.S. if President Xi does not meet with him.
The market would almost certainly react negatively if those tariffs are enacted.
China manufactures many of the world’s toys, and MAT is one of the world’s most well know toy manufacturers. More tariffs could send the stock lower.
Resistance at its 50-Day Moving Average
If you look at the chart below, you can see that MAT is trading below its 50- and 200-day moving averages (MAs). Its 50-day MA acted as resistance in late May, and yesterday, the stock tapped it again.
The chart also shows MAT finding support just above the $9.50 level last week. Some people attributed that drop to escalating trade tensions. Now that it has tapped resistance at its 50-day MA, I expect it to retest its recent bottom.
The U.S. China trade situation doesn’t favor MAT right now, and I don’t think it will improve anytime soon. For that reason, I’m recommending a bearish put option.
Buy to open the Mattel, Inc. (MAT) Aug. 16th $11 Puts (MAT190816P00011000) at $0.75 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.