I’d like to celebrate the S&P 500 latest high with a bullish put write on Albemarle Corporation (NYSE:ALB), the specialty chemical manufacturer.
ALB is primarily known for harvesting lithium, which is used in the production of batteries for electric vehicles (EVs).
Demand for lithium for use in EVs has been slowing, and as a result, prices have started to fall. Falling prices led ALB to cut earnings expectations ahead of its most recent report, and that caused ALB to drift to the lower end of its trading range.
But the company’s long-term outlook is positive enough — and its technical formation is strong enough — to keep it pushing higher through the beginning of 2020.
How Have Falling Lithium Prices Hurt ALB?
As mentioned above, ALB cut earnings expectations for 2019 before reporting in November.
It was able to beat its lowered earnings per share (EPS) expectations for the third quarter, but according to Zacks, ALB did miss revenue expectations, which may have led to a slight pullback.
There’s no denying that falling demand for lithium is part of the problem. ALB and the other producers simply overdelivered, and that oversupply has hurt prices.
We’ve also seen issues in the Chinese market this year, one of the most important EV markets. China has cut subsidies for EVs, which lowered demand.
But at an investor day in mid-December, ALB’s CEO reminded investors that long-term demand remains strong.
And though ALB’s expectations for 2019 were lowered, it’s important to remember that, in the third quarter, ALB grew year-over-year net sales in its lithium segment by 22% despite all the oversupply issues in the market.
Pushing Above Its Moving Averages
In the chart below, you can see that ALB found a bottom in August, and since then, it has been in an up-trending channel. As the stock makes higher lows and higher highs, it has passed both its 50-day and 200-day moving average, which is a very bullish sign.
Daily Chart of Albemarle Corporation (ALB) — Chart Source: TradingView
The market is in a bullish mode, and the beginning of the year could bring even more bullishness. Stocks like ALB, which have managed to grow despite issues in their sector, have a lot of appeal.
ALB may have lost value since the start of 2019, but it looks primed to start 2020 in an uptrend. It may stall at the $76 level, which has acted as resistance before, but its up-trending support should keep it above $65 in the short term.
Sell to open the ALB Jan. 17th (2020) $65 put at about $0.35.
Note: Be sure you are opening the monthly ALB options that expire on Friday, Jan. 17, 2020.
This is a high-risk trade, so take a small position.
About Naked Put Writes
A naked put write is a bullish position in which you expect the price of the underlying stock to increase.
InvestorPlace advisor Ken Trester also 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.
