Stocks rebounded a bit this week. And they might get bid up just a little bit higher.
Investors are being lulled into a bull trap. That’s when bulls feel it’s safe to start buying again.
But there’s another sharp decline to come. The full toll of a recession isn’t priced in yet.
Here’s your opportunity to profit from the next move lower.
Walmart Inc. (NYSE: WMT) is a global retailer. Its stores are everywhere. And it sells all of the essentials we need to prepare to shelter at home: hand sanitizer, food and toilet paper.
That’s why its shares have held up well compared to the broader market. Walmart only gave up 12% from peak to trough.
But it’s not immune to an American recession.
And the stock’s rebound worries me. It’s failing.
Here’s why I see a chance to grab up to triple-digit gains trading options around this stock by June.
Shares Set to Fall 20%
The black line is the share price of Walmart.
The blue line is the stock’s 200-day moving average, a key gauge of a trend’s longer-term strength.
The 200-day moving average tends to offer support when a stock’s uptrend is stable. On the flipside, it tends to offer resistance when a stock is in a confirmed downtrend.
The sell-off this month pushed Walmart below its 200-day moving average.
Then the stock bounced back above it. That was encouraging … until it failed to stay there.
Now that the stock has fallen through the 200-day moving average again, investors will be reluctant to buy up this stock until it shows some strength.
That’s pushed buyers to the sideline.
And now recession fears are going to drag this stock down even lower.
When all is said and done, Walmart is set to lose half of the gains it made in its uptrend, which began at the end of 2015. I call this an uptrend retracement.
I expect a 20% decline to roughly $88.60 per share.
And that’s based on an analysis I developed called Apex Movement Patterns (AMPs).
These AMPs identify the most core human emotions that drive stock prices: fear and greed.
Your Trade Setup
To benefit from the downside in Walmart, you can buy a put option. The value of the put will rise as the stock declines.
Since the expected move is two months, we can use the June 19, 2020, expiration date to take advantage of it.
With the stock trading around $109.50, we can buy the $110 strike price for roughly $8.30.
That gets us in a position to double our money as the stock price moves toward $88 a share over the next few months.
Since this is a bonus opportunity, we won’t be updating you on what action to take next. A good rule of thumb is to set a limit order to sell half at whatever would net you a 50% gain.
For example, if you buy the put option for $8.30, you can set a limit order to sell half at $12.45.
But you’ll also want to watch your downside risk. Look to preserve capital if it falls below a 50% loss.
Here’s a table with the trade setup.
This is our second weekly bonus options trade in Winning Investor Daily. And we’d love to hear what you think of it. Just send us an email at winninginvestor@banyanhill.com and let us know!
Good investing,
Editor, Apex Profit Alert
