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This morning, I am recommending a bearish trade on Caleres, Inc. (NYSE:CAL), the global footwear retailer and wholesaler.
Even with the S&P 500 setting a new all-time closing high last week, it’s important to balance your bullish trades with some downside protection.
After the bullish action, the major indices are likely to run into some resistance at current levels. The S&P 500, for example, is sitting right around the 2,950 level where it topped out back in May.
We’ll want to see this level broken decisively to the upside and held on any subsequent pullbacks. If that level does not hold, then we could be in store for more sideways trading.
To be clear, I am still in the bullish camp. But last Friday, I mentioned investors were seeking safety in precious metals, and this morning, I’d like to recommend a bearish play based on what they need safety from.
Waiting on the Trade Situation to Change
The biggest concern for the market is what will come out of the meeting between President Trump and Chinese President Xi Jinping at this week’s G-20 meeting in Japan.
I don’t think the U.S. and China will reach any substantial agreement on tariffs at the meeting. But because expectations for a deal are so low, Wall Street will likely cheer and send the market higher if there are any signs, however small, that progress is being made.
Without a concrete deal in place, though, that rally may be short lived. The retail sector is already struggling, and I don’t think it can fully recover until a real deal is in place. And there’s always a chance the meeting goes poorly.
If we look at the daily chart for the SPDR S&P Retail ETF (NYSEARCA:XRT), we can see the market’s recent push higher has given it a boost, but it’s nowhere near its 2018 highs. That’s at least partially due to fears about trade and global growth. After all, retail sales increased in May, but the sector is still struggling with resistance at $43.
Daily Chart of SPDR S&P Retail ETF (XRT) — Chart Source: TradingView
A global retailer like CAL will continue to struggle as long as this trade conflict drags on. And since the company lowered its full-year profit outlook after its last earnings report, it looks like the company is expecting trade to affect its bottom line.
CAL Can’t Get Above $20
If you look at the daily chart below, you can see that CAL has been struggling to get above $20 since early June.
Daily Chart of Caleres, Inc. (CAL) — Chart Source: TradingView
CAL dropped below support just under $19 last week, but it did start to recover slightly on Friday. Depending on the news from this week’s meeting between President Trump and President Xi, it could head lower. And if it is rejected at the $20 level again, it may retest its recent support at $18.
We may be in a bullish mode, but this trade on CAL is a good way to add some bearish exposure to your portfolio in the even of a turn to the downside.
Buy to open the Caleres, Inc. (CAL) Aug. 16th $17.50 Puts (CAL190816P00017500) 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.
