I targeted the important 110 support level for a trade in CMI that I took off last week, as I expected global industrial weakness to affect the stock. What to do now that the stock is around that level?
My fundamental thesis has gotten even more confirmation in the past week, as weak U.S. data was added to already weak Asian and European data points. But on a technical basis, the stock is very close to important 110 support, as shown on the 1 year chart:[caption id="attachment_24422" align="alignnone" width="634"] 1 year daily chart of CMI, Courtesy of Bloomberg[/caption]
With the broader weakness we have seen in materials and industrials, and poor guidance recently from FDX and CAT, I expect CMI to break that level in short order.
Here’s the trade:
TRADE: Bought the CMI ($111.40) May 110 / 100 Put Spread for $2.80
-Bought 1 May 110 put for $3.85
-Sold 1 May 100 put at $1.05
Break-Even on May Expiration:
-Profits of up to 7.20 between 107.20 and 100, max profit of 7.20 at 100 or below
-Losses of up to 2.80 between 107.20 and 110, with max loss of 2.80 at 110 or above
I expect the 100-102 area to act as support. I think a break of 110 though will cause a quick move lower. In case it does not, May options capture earnings, which will be important as a potential catalyst as well.