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.