בס״ד

Betting Against the Batflu Swimming Penchant (POOL)

Posted on August 26, 2021

Pool Corp. (NASADQ:POOL) is the company that fills your swimming pool with chemicals that sting your eyes, kill your gut bugs and degrade your acid mantle.

But what the hey! – the stock is up.

What ever happened to men’s fashion?

To argyle shirts and the ubiquitous ‘vest’?

Gone…

All of it.

And we’re all the worse for it.

Fundamentally Flawed

POOL stock is now pushing the limits of rational securities discourse.

Viz –

  • P/E is 36.88,
  • Dividend Yield is a nominal 0.48%, and
  • Price to Book is a wildly chlorinated 22.25.
  • On an equally humorous note, Earnings Per Share for the coming year are expected to rise by – get this – 6.04%, according to analysts’ consensus, and
  • Maybe that’s why insiders have dumped a full 24% of their holdings in the last six months. The total sales figure was $55 million, of which $30 million was offloaded in just the last 30 days.

Hmm…

And They Know It…

Lots of folks used the Batflu interregnum to build, remodel or otherwise futz with their swimming pools.

But that’s now come to an end, in our view.

And with it, any remaining strength in the stock.

Below, we’ve charted the daily action for the calendar year, 2021.

Pay attention to both RSI and MACD, in particular –

Technically, POOL is looking weak on a number of fronts.

  1. As mentioned, RSI was overbought in late April/May (circled, in red), and
  2. Since then, both RSI and MACD have been diverging against price (in green).
  3. Both indicators will submerge below their respective waterlines in a matter of days if the current weakness continues.  And that should bring waterfall selling as the negativity ramps up.
  4. A bearish rising wedge formation is also narrowing quickly (in red), and
  5. Price is sitting just above the lower trendline.
  6. That’s final support – and it aligns directly with the short term moving average, now at 480.  Should price decline below that level, we’ll have another reason to expect an EVERYONE-INTO-THE-POOL surge of selling.
  7. Bottom of the bath is likely at POOL 380/390, where a gap needs filling (in blue), and
  8. A simple Fibonacci retracement line comprises support along with the rising 274 DMA (in purple).

And that says it all.

Now it’s time to drown in riches.

Like this –

A Jew and His Gold recommends you consider selling the POOL September 17th 480/490 CALL spread* for $3.70 (13.30/9.60) and buying three (3) POOL September 17th 440/430 PUT spreads** for $1.15 (2.05/0.90) each.  Total credit on the trade is $0.25.

[*Sell the 480 CALL and buy the 490 CALL.  **Buy the 440 PUT and sell the 430 PUT.]

Rationale: no cost to trade and a big potential payday.

Entry to the trade pays us $0.25 and our maximum win is $30.25.

Max loss is $9.75, which is not the greatest danger here, considering recent price action.

The real risk is time.

With but three weeks remaining to expiry, our first worry is that we’ll run out of trading hours before the decline is complete.

And that’s why we’re labeling the trade SPECULATIVE.

But maybe G-d likes speculative…?

Many happy returns!

Matt McAbby

 

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