This morning, I am recommending a bearish trade on Delphi Technologies (NYSE:DLPH), the United Kingdom-based vehicle propulsion designer and manufacturer.
My indicators are giving sell signals for the first time since early October. While the major indices continue to show strength, I think they are overdue for a pullback.
As my regular readers know, healthy markets do not go up in a straight line. Pullbacks, however painful they might be, are a necessary part of investing.
They can be nerve-wracking, like the roughly 20% decline at the end of 2018. Or they can be mild like the latest pullback we saw in mid-September of this year.
But regardless of how sever they are, it is always good to keep a little extra protection in your portfolio, just in case. DLPH has been performing poorly for most of 2019, and if there is a pullback on the broader market, I think it could fall rapidly. If not, traders may still be able to collect a profit on a long put option as the stock slowly sinks lower.
DLPH’s Revenue is Down Across the Globe
Even as the market pushes to new highs, DLPH’s performance is pretty dismal, and part of that is due to its global reach.
It’s no secret that the global economy is struggling. Back when the Federal Open Market Committee began cutting interest rates, Jerome Powell was talking about the global slowdown.
When the company reported earnings, it met earnings per share estimates, but it fell far short of revenue expectations. Adjusted revenues were down by 8% year over year.
One of my primary trading rules is not to buck the Federal Reserve and not to buck the tape. Well, both the Fed and the tape are working for the bulls, not against them.
A bearish trade in this market needs to be on a company like DLPH, which just doesn’t have strong fundamentals.
Falling Since Mid-April
In the chart below, you can see that DLPH has been falling since mid-April. Its 200-day moving average (MA) has acted as resistance, three times since then, and now it has dropped below its 50-day MA.
DLPH looked like it was forming resistance at around $12, but it broke below that level yesterday, and I don’t think it’s found a bottom yet.
Daily Chart of Delphi Technologies (DLPH) — Chart Source: TradingView
If there is a broader pullback in the market, the stock could be pushed lower, but I also think it is headed that direction already. With a cheap put option, traders can set themselves up for a profit.
Buy to open the Delphi Technologies (DLPH) March 20th (2020) $10 Puts (DLPH200320P00010000) at $0.95 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.
