China Tariffs Have Agriculture Stocks Testing Key Technical Levels

Beijing unveiled a list of U.S. imports that could face stiff taxes

Apr 4, 2018 at 1:19 PM
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Agriculture stocks are taking a hit today, after China unveiled a new round of excise taxes in reaction to U.S. tariffs. Joining automobiles and airplanes on the list of U.S. imports that face tariffs of up to 25% are soybeans and chemicals, which has the Materials Select Sector SPDR Fund (XLB) trading down 0.9% at $55.97 to test its 320-day moving average -- a trendline the shares have closed below just once since mid-2016. And while Monsanto Company (NYSE:MON) also trades near this key trendline, DowDuPont Inc (NYSE:DWDP) stock is hovering just above recent lows.

Bears Emerge Ahead of Monsanto Earnings

Monsanto shares are down 0.3% at $116.67, holding near their 320-day moving average. This trendline has served as a floor since MON stock's mid-March plunge, and cushioned retreats back in July and November 2016. What's more, it sits just below MON stock's year-to-date breakeven level of $116.78.

Options traders, meanwhile, have been buying to open puts over calls at a faster-than-usual clip ahead of Monsanto's fiscal second-quarter earnings report, due before the market opens tomorrow morning. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.95 ranks in the 84th annual percentile. What's more, just yesterday a trader hedged Monsanto shares by paying nearly $150 million for 124,000 weekly 4/6 128-strike puts, per Trade-Alert.

DowDuPont Stock Breaches Post-Merger Open

DowDuPont shares are off 0.4% to trade at $63.07 -- below their early September post-merger open of $65.66, and earlier coming within striking distance of Monday's all-time low at $61.28. The Dow stock has now shed more than 18% from its late-January record high at $77.08.

Nevertheless, options traders have been overwhelmingly bullish in recent weeks, per the stock's top-heavy 10-day call/put volume ratio of 5.86 at the ISE, CBOE, and PHLX. DWDP's May 65 call has seen the biggest increase in open interest over this time frame with 10,741 contracts added, and data from the major options exchanges confirms buy-to-open activity. In other words, speculators expect the stock to rally back above $65 by expiration at the close on Friday, May 18.



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