Trader focuses on German stocks out of Italy turmoil

Political turmoil in Italy has TradingAnalysis.com founder Todd Gordon betting on a drop for another key European market: Germany.

The German stock market-tracking ETF (EWG) tumbled more than 3 percent Tuesday, and Gordon believes the ETF, which he says is “representative of [the] overall condition of European markets,” is headed lower on the recent volatility.

  • On a chart of the S&P 500 and the EWG, Gordon points out that EWG is coming down to retest the $31 level for a third time
  • According to Gordon, a third retesting of this level means EWG could likely break below $31
  • The S&P 500, said Gordon, has also been making lower highs, which together with the move down in EWG has him concerned about global markets as a whole

  • How low could EWG go? Gordon believes that if volatility continues then the EWG could even fall to around or below the $30 mark
  • As a result, Gordon wants to buy the July monthly 31-strike put and sell the July monthly 29-strike put for 53 cents, or $53 per options spread
  • This means that if EWG closes above $31 on July 20 expiration, Gordon would lose the $53 it cost him to make the trade. But should EWG close below $29 on July 20, then Gordon could make around $145 on the trade.

The trade: Gordon is suggesting buying the July monthly 31/29 put spread for about 53 cents, or $53 per options spread.

Bottom line: Gordon believes German stocks will continue falling, with EWG dropping below $30.

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