With a presence in more than thirty-three countries and almost one thousand five hundred “hypermarkets”, Carrefour SA (EPA: CA) is one of the biggest retailers in Europe. It is also a symbol of the French economy.
This year started with great prospects for European companies that were doing business within Europe. The European Central Bank (ECB), launched a bond-buying program with the stated intention of weakening the local currency, the Euro. The immediate effect was for assets to start inflating in value. One of the great places to pour money into at this point was the equity markets. It is no wonder that stock indices jumped on the news, and this move was cheered on by investors that saw share prices bringing in strong gains.
However, the Euro is trading at around 1.11 on the US dollar now, down from around 1.40 before the ECB launched the bond-buying program. Having a weaker Euro meant that companies like Carrefour diminished their negotiation power for imported goods.
The technical picture looks to confirm the above statements, in the sense that the start of 2015 saw share prices on the rise with levels above €32/share being reached. Nevertheless, the move seemed to be corrective from lows in mid-2012 (in the €14/share area). This calls for our attention moving forwards.
What I would like to see from this share price is a bit of a bounce before trading a put option. The idea is to wait for the price to move to €29 from the current €26 area before engaging on the downside.
The Eurozone just had the PMI’s (Purchasing Manager Index) released today, and the quarter turns out to be the strongest one in the last four years. This may be because of the ECB bond-buying program and the effects of monetary policy are starting to be seen. This means stronger growth should be expected. I am talking about both manufacturing and services, and this means a lot for an economy that lacks inflation and has low growth prospects.
It should be noted though that monetary policy takes time, so until we see a complete return to growth and inflation, equities may drag for a while longer.
As a consequence, I am favoring the downside from the €29 level, and this means put options with a one-month expiration date, or an end of month expiration, whatever expiration date suits best.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
