I’m not here to cast aspersions on satellite design and manufacturing specialist AST SpaceMobile (ASTS). As many have pointed out, the space economy could be worth $1 trillion by 2040 — and that might be an underestimate. However, this assessment also likely assumed that the terrestrial economy would move along in a rather predictable trajectory. That presupposition may no longer be valid, which is why ASTS stock is risky.
Again, it’s not about hating the business or not being visionary enough to see the underlying potential. AST SpaceMobile is certainly an exciting enterprise. But we also have to be realistic. While President Donald Trump has threatened, implemented and then walked back tariffs on key economic partners multiple times, at some point, other nations are simply not in a mood to accommodate such high-level policy fluctuations.
Colloquially, the U.S. economy is suffering from FAFO — fool around and find out.
It’s an indelicate way of stating that China — one of the nations targeted by the Trump trade war — has fired back. Specifically, Beijing retaliated against the levies with an additional 15% tax on key American agricultural products, including chicken, pork, soybeans and beef.
To be fair, the Chinese response against U.S. agriculture isn’t the sole contributor to the market’s fallout on Monday. Instead, it’s the underlying message: the White House may be willing to engage in a brutal stare down with other nations in order to press for more favorable trading terms. Still, the move is incredibly treacherous, as evidenced by what happened on Monday.
While President Trump has downplayed the risks of a recession emerging, he did point out in an interview with Fox News on Sunday that there may be a “period of transition.” Ultimately, he sees a return to a prosperous America. At the same time, the cloaked language suggests that the president recognizes the potentially bumpy road to get there.
From an agnostic perspective — political or otherwise — it’s probably time to back off ASTS stock.
Broadening Top Formation in ASTS Stock Could Be a Big Warning
On Monday, ASTS stock dropped almost 13%, with investors reeling from the potential consequences of a protracted trade war. To prepare for the worst, market participants began jettisoning speculative ideas tied to capital-intensive industries.
It wasn’t anything personal…it was just business.
Because of the severity of the decline, ASTS stock represented one of the 500 securities making up Barchart’s unusual options volume indicator. Total volume yesterday reached 121,289 contracts against an open interest reading of 566,952 contracts. This figure represented a nearly 19% lift from the trailing one-month average metric.
Now, at first glance, the put/call ratio of 0.44 — stemming from 84,125 calls versus 37,164 puts — would seem to be bullish. However, options flow data (which filters exclusively for big block transactions likely placed by institutional investors) showed net trade sentiment at $974,400 below parity, thus favoring the bears. Indeed, many of the calls were sold short, indicating pessimism.
However, the biggest clue that not all is well stems from the technical chart. Starting from late January this year, ASTS stock appears to have charted a broadening top formation. One of the patterns mentioned by author John J. Murphy in his book, “Technical Analysis of the Financial Markets,” the broadening top is an expanding triangle usually occurring at major tops.
According to Murphy, this formation features eight distinctive phases, with the eighth one being a sharp correction. If my assessment is accurate, ASTS stock is in the middle of the fifth phase. Again, assuming this thesis is correct, ASTS may first see further red ink, followed by a dead-cat bounce. However, the bounce may be a bull trap, which may eventually lead to the eighth and final phase.
Running a guided Monte Carlo simulation and modeling for a double-digit weekly loss, ASTS stock could potentially see volatility over the next two weeks before popping higher in the third week. However, from the fourth week onward, the narrative appears rather pessimistic.
To be clear, ASTS stock did not actually post a double-digit loss last week. Still, given the severity of Monday’s erosion, I felt it was prudent to model the equity as if it did incur such volatility.
Playing the Double Opportunity
Should speculators want to trade the broadening top, there are two approaches to consider. First, intrepid gamblers could consider playing the 6-7 cycle of the aforementioned pattern with a bull call spread.
Before this trade can be carried out, ASTS stock will likely need to drop below the $24 level, perhaps closer to around $22. From there, bull spreads featuring a short strike price of $25 could be enticing. To reiterate, this trade is only for the boldest of speculators.
In my opinion, the more feasible idea is the bear put spread expiring April 17. Specifically, I’m looking at the 25.00/22.50 put spread, which aims for ASTS stock to drop to or below the short put strike at the expiration date. Should circumstances pan out based on the implications of the broadening top, this transaction could allow speculators to extract negative value out of the space economy.
