Stocks are pushing higher on the hope that the global economy will start to reopen soon, and while I remain skeptical of the rally, buying a bullish call option on Ryder System, Inc. (NYSE:R) is a good way to get in on the action.
Italy, one of the countries hit hardest by the pandemic, revealed a plan to slowly reopen its economy beginning May 4, and New York, the state with the worst outbreak in the country, is also announcing a plan to gradually phase out the more extreme social distancing measures.
The market has decided to focus on that news instead of White House health official Debora Birx’s reminder that “social distancing will be with us through the summer.”
But regular readers know I never want to buck the tape, or go against the action in the market, so I’m looking to the transportation sector for a bullish play.
Transportation Keeping Pace
Since hitting its bottom in March, the S&P 500 has risen by over 21%. While some sectors, like technology, have outpaced the index, others, like transportation, have only kept pace.
If you look at the chart of the transportation sector as represented by the SPDR S&P Transportation ETF (NYSEARCA:XTN) compared to the S&P 500, it looks unimpressive. However, XTN dropped by over 40% when the market fell, and the S&P lost 30% in its crash.
Daily Chart of SPDR S&P Transportation ETF (XTN) — Chart Source: TradingView
XTN’s recovery is that much more impressive, and I think it will continue rising. R has an appealing technical picture that makes it a good stock in the sector to target for a bullish trade.
Upward Channel After Bottoming
R didn’t find a bottom until early April, but once it started rising, the stock formed a channel heading higher. Last week it bounced off up-trending support, and if it can overcome its 50-day moving average, I think it will push into the upper $30 range.
Daily Chart of Ryder System, Inc. (R) — Chart Source: TradingView
Like most companies, R is expected to report a loss on its earnings call, which is scheduled for April 29. Zacks Research says the expected loss is $0.85 per share. That is an incredibly low number, and it could be easy to clear.
Even more important is R’s guidance. As John Jagerson and Wade Hansen wrote, companies that provide guidance, even negative guidance, are projecting confidence. If we see numbers from R, the stock could jump higher.
Rather than hope for the stock to jump to the upper $30 range, traders can bet on an even shorter-term goal: making it back above $30. I’ve set the strike price for my option at that level because R is already moving to challenge it.
Buy to open the Ryder System, Inc. (R) June 19th $30 Calls (R200619C00030000) at $1.90 or lower.
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.