Trade Alert: An Oversold Materials Stock

Betting on a bounce.

A Materials Stock With Solid Fundamentals…

Here’s a snapshot of the fundamentals of a lithium stock that’s been on my radar recently:

Here’s some additional data on it via Chartmill:

• Piotroski F-Score: 8 (on a scale of 0-9)

• Profitability Rating: 8 (all Chartmill proprietary ratings are on a scale of 0-10)

• Growth Rating: 8

• Valuation Rating: 8

• Health Rating: 9

In addition, there’ve been no insider sales this year.

…But A Beaten-Down Share Price

The stock is down nearly 40% since July, mainly because lithium prices have tumbled this year (since China is a major lithium buyer, prices for it are often quoted in CNY, or Renminbi per ton).

Despite the fall in lithium prices, lithium is still selling for well above this company’s cost of production.

Why It Might Be Due For A Bounce

Its RSI (Relative Strength Index) is under 20 currently, indicating that the stock is oversold, and it has short interest of more than 15%. If its next earnings report is even a little better than expected, the stock might get a bounce as short sellers cover.

Details below.

Our Bullish Trade

The stock is Livent (LTHM 0.00%↑), and the trade is a vertical spread expiring on November 17th buying the $18 strike calls and selling the $19 strike calls for a net debit of $0.40. The max gain on 8 contracts is $480, the max loss is $320, and the break even is with LTHM at $18.40. This trade hasn’t filled yet. This trade didn’t fill on Friday, and in this market, on a little wary of using GTC limit orders to enter trades. I am going to see if I can get this one a little more cheaply on Monday. I’ll update here and in the comments if I do. Filled at $0.40 on 9/26.

Exiting This Trade

Assuming this fills, I’m going to set a GTC limit order to exit this at a net credit of $0.90, and lower that price if necessary as we get close to expiration.