NEW DIRECTIONAL PUT PLAYS

Toyota Motor Corp. - TM - close: 108.42 change: -0.22

Stop Loss: 111.05
Target(s): 100.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
TM is in the consumer goods sector. Based in Japan, they are a major manufacturer of automobiles with major brands like Toyota, Crown, and Lexus. Auto companies had a pretty good year in 2013 as far as sales but TM's market share gains were essentially flat. At the start of the year analysts were estimating 2014 U.S. vehicles sales at 16.2 million (total sales, not just TM). That has retreated following a rough start to the year thanks to the extraordinarily cold winter.

TM's sales pace in the U.S. has been rocky, which they too blame on the weather. TM had a major scandal a few years ago over a massive recall where their Toyota vehicles had a chance to accelerate unexpectedly. They just agreed to a $1 billion settlement with the U.S. Justice Department in March this year. Already this year TM has announced two more significant recalls.

Bulls could argue that TM is doing well with sales in China. That is true. The Chinese market is now the biggest automobile market on the planet and TM has seen strong sales growth in China. Yet it does not seem to be helping the stock price.

Shares of TM are about to hit bear market territory. The stock is in a clearly bearish trend of lower highs and lower lows. The recent bounce toward the top of its bearish channel looks like an entry point to buy puts.

We are suggesting puts now, at current levels, with a stop loss at $111.05, just above the 40-dma. Our target is $100.50. However, we will plan to exit prior to TM's earnings report in May. The company has not set a date yet but we expect the announcement to be in the first half of May and will update our exit when they publish their earnings date.

FYI: The Point & Figure chart for TM is bearish with a $90 target.

- Suggested Positions -

Buy the May $105 PUT (TM1417Q105) current ask $1.06

Annotated Chart:

Weekly Chart:

Entry on April -- at $---.--
Average Daily Volume = 602 thousand
Listed on April 22, 2014