Twenty-First Century Fox Inc (NASDAQ: FOX) has been hit hard in recent days, as the market has come to realize that the way people are watching television is changing. Also, the changes do not seem to be a seasonal thing, rather they are an evolution of how people consume media.
It is well known that the Pay-TV industry will lose subscribers during the summer months due to the holiday period. This means that the winter season is the most important, however, the current decline in the number of subscribers is based on the same period when compared with previous years for both seasons. That says much about the future and the way FOX needs to reinvent its service to keep up with consumer behavior.
Fox’s TV services isn’t the only area to be aware of. Their movie division is also suffering from projects such as The Fantastic Four, which turned out to be a financial fiasco that saw losses of approximately $60million dollars.
To put things into perspective even more, the five years chart for FOX’s share price looks bearish and shows the forming a reversal pattern. I am talking about a head and shoulders pattern, and the recent move below the $30 mark seems to mark the break of the neckline.
This opens the gates to the measured move to the downside and it points towards the $25 or $26 range. However, this does not mean that we should see a straight line into that area as a neckline is retested most of the time before anything happens, but nevertheless, it is still a bearish picture.
Normally I would wait for a retracement before taking a trade but this time, with the Chinese devaluing the Yuan and putting pressure on the global stock market, it means we can actually see that straight line mentioned above.
It would be interesting to see how the Fed will react to this Chinese move, but from my point of view, there is little the Fed can do at this very point in time.
As for FOX, such a reversal pattern has almost the same time for the right shoulder to form as it has for the left one, and this confirms expectations for the measured move to be completed sooner rather than later.
Therefore, straightforward put options on FOX from the current $30/share price, with a one-month expiration date should be traded. If the market is retracing and retesting the neckline, namely to retrace to 32$/share again, that should be viewed as another opportunity to buy another put option, with a lower expiration date this time.
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.
