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This morning I’m recommending a bearish trade on Cambrex Corporation (NYSE:CBM), a life sciences company.
While my indicators are giving bullish readings again this week, they dipped briefly into neutral territory this week as the S&P 500 struggled to clear its 200-day moving average. The rally from the late-December bottom remains intact, although we did get some economic news on Thursday that was somewhat concerning.
Retail sales dropped a seasonally adjusted 1.2% in December, which was the largest monthly drop since 2009. December is typically one of the stronger months for retail sales, as a lot of consumers do their holiday shopping that month, so this reading came as a surprise to Wall Street.
Though I remain bullish in the near term, I am recommending a defensive position this morning in case the market makes a move to the downside. CBM missed earnings this week, and it has exposure in Europe, so I decided it would be a good downside play.
Europe is Struggling
The economic situation in Europe is not good at all. Their central bankers are all out of options for stimulating the region’s economies, and that weakness has the potential to creep over into our markets eventually.
Two of the three subsidiaries that own CBM’s manufacturing facilities are located in Europe. CBM also has research and development facilities throughout Europe. If we do start to see Europe’s economic issues affect our market, it will start with companies like CBM.
No Support Above $30
CBM reported earnings on Feb. 13, before market open, and it missed earnings estimates by over 90%. The stock dropped below support at the $36 level, and yesterday it dropped even further.
Daily Chart of Cambrex Corporation (CBM) — Chart Source: TradingView
CBM set a new 52-week low this week, and its next support level — from early 2017 — is at $30. The fundamental picture looks bad, and CBM doesn’t have the technical support to keep the stock from falling further. That’s why I’m recommending a bearish play this morning.
Buy to open the Cambrex Corporation (CBM) April 18th $30 Puts (CBM190418P00030000) at $0.75 or lower.
Note: The Good Friday holiday falls on April 19th, 2019. Because U.S. markets will be closed that day, April monthly options will expire the day before, on April 18th, 2019.
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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.