בס״ד

A 2340% Return from PAYX! – While A Costco Waterfall Looms (COST, PAYX)

Posted on September 23, 2021

A very happy Chol HaMoed to all you good Jews and Noahides.  May you experience only peace in the sanctified space of your sukkah.

Before we discuss today’s trade, just a quick report on our PAYX trade profit.

Last Friday, with options expiring, we recommended the following –

The trend on PAYX is lower and we expect further losses through today’s close.

Leave her be, and with G-d’s help we’ll expand the current $0.58 gain into something more meaningful.

So let it be written…

So let it be done!

Imagine our gymnastic-like joy when, at the close, PAYX traded lower to $108.78 – offering us a gross profit of $1.22!

Less the $0.05 we spent on the trade, our NET take was an extraordinary 2340% – in just 60 days!

And that’s worth all the bean dip you desire.

Congrats to all who entered a train-load of units.

We’re proposing a bet on Costco Wholesale Corp. today (NYSE:COST), big-box commoditizer of all things retail.

Here’s the company’s fundamentals –

  • P/E is a ridiculous 42.53,
  • Dividend Yield a perfunctory 0.70%, and
  • Price to Book a maniacal 12.16!

Technically, too, the stock looks priced to SELL.

Here’s the daily chart –

And the takeaway is –

  1. We’ve got an overbought RSI read from mid-August (in green) that corresponds with
  2. A MACD rollover.
  3. That led to negative divergence of both indicators against price (in red, at bottom) – all of which is patently bearish, and should lead to a significant decline.
  4. Additionally, ten days ago, a three month trend-line broke (in red),
  5. Sending price below the short-term moving average (in blue), and forming a roof over price at $458.
  6. Next logical support arrives with the rising 137 DMA, now at $399.

And the weekly’s no better.

Have a look –

  1. Here, we see a weekly overbought RSI signal in green (doubly damning), and
  2. A clear MACD rollover developing.
  3. This comes just as price formed a bearish engulfing pattern (enlarged, in black).
  4. With price already torturously stretched from her weekly moving averages, simple Fibonacci retracement calculations point to a decline to $407 (and potentially $370) as the selling unfolds (in purple).

In other words, cascading losses on COST appear increasingly likely.

And that’s why…

A Jew and His Gold recommends you consider selling the COST December 17th 480/490 CALL spread* for $1.70 (7.25/5.55), and buying the COST December 17th 440/420 PUT spread ** for $6.15 (13.60/7.45).  Total debit on the trade is $4.45.

[*Sell the 480 CALL and buy the 490 CALL.  **Buy the 440 PUT and sell the 420 PUT.]

Rationale: our maximum take on the trade is $15.55, and for that we have to lay out $4.45.

Our maximum loss is $14.45 (difference between the CALL spread strikes plus the initial debit).

As for that max loss, COST would have to defy all its technical underpinnings to put us fully in the red, rise above its latest highs and likely register another overbought RSI reading in the process.

And we don’t count that as a plausible eventuality.

There certainly could be a bounce down the road – but not until the daily MACD indicator reaches its waterline, which appears at this juncture to be at least 10 days away.

It’s more likely we’ll get a waterfall move lower, more or less in line with the broader market, until we reach the 410 range.

And that would more than pay us for our troubles.

This is Zman Simchateinu, Yidden.  Enjoy!

And many happy returns!

Matt McAbby

 

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