Auto Sector Weakness Stalling Fiat Chrysler Stock

Renault cut its 2019 guidance, citing weakening auto demand

by Patrick Martin

Published on Jul 30, 2019 at 9:50 AM

The shares of Fiat Chrysler Automobiles NV (NYSE:FCAU) are reeling this morning, down 4.8% to trade at $12.98, one of the worst stocks on the New York Stock Exchange (NYSE). The drop comes after fellow European carmaker Renault slashed its revenue goal for 2019, citing weakening auto demand and the fallout of Carlos Ghosn’s arrest over at Nissan.

Earlier this summer, Fiat Chrysler scrapped plans to buy Renault, citing "the political conditions in France." Fiat Chrysler stock is now eyeing its worst day since May 31, which is also home to its annual lows of $12.58. The shares also surrendered their year-to-date breakeven level, and have once more breached their 50-day moving average, a trendline that's served as both support and resistance in 2019. 

For a stock that's struggled to breakout on the charts, short sellers seem a step slow. Short interest fell 10.4% in the two most recent reporting periods to 11.78 million shares. This accounts for a slim 0.8% of FCAU's total available float, and only 3.4 times the average daily trading volume.

Options traders are much more focused on puts. FCAU's 10-day put/call volume ratio of 2.47 on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 92nd percentile of its annual range, indicating not only that puts have doubled calls in the past two weeks, but also that the rate of put buying has been much faster than usual.

Plus, the equity has had a tendency to make bigger moves than what options were pricing in over the past year. The stock's Schaeffer's Volatility Scorecard (SVS) sits at 98 (out of 100), which means buying premium has been an attractive strategy during the last 12 months.

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