From Scrap Metal Leader to Junk Yard Stock (CMC)

The Commercial Metals Company (NYSE:CMC) will produce steel and metal products for you regardless the current criminal band that reigns in your jurisdiction, be it the United States, Poland, China, or elsewhere.

The company celebrated its 100 year birthday some seven years ago in its Irving, Texas headquarters.

And it Does a Good Business

Few have heard of her, but CMC came into her own in the early 2000’s, stacking multiples onto her microcap valuation to sit with a market capitalization of some five and a half billion dollars today.

That said, the stock’s run to recent highs has goosed all the juice from the bulls, and we’ve more than a passing hunch that a proper body slam to the canvas is now in the offing.

You can only play footloose with a respectable Texan for so long.

Today’s trade will cost you just pennies to put on, but could bag you a very rich 4900% — and without too long a wait.

Options prices have become ideal.

And that’s what we like best.

So consider, first, the company’s fundamentals —

• P/E is a minute 4.85, and that’s promising.
• Moreover, the stock’s annual yield is 1.33% (not bad for today’s market), and…
• Price to Book is a reasonable 1.74.
• Yet, analysts are expecting a decline in EPS for the coming year of some 27.36%, and…
• This year’s earnings were an absolute inflation-inspired anomaly, accounting for nearly all of the stock’s 56% gain over the last six months.

And that’s about where it ends.

With next earnings to be announced January 9^th, we’ve crafted a most-delicate initiative, animated by our most recent visit to the Louvre, where our guide, Enchantee Bouillabaisse, treated us to three hours in the private Monet collection with the artist’s great grand-daughter, Crepes Suzette.

Take a look now at the chart —

Technically, we’re looking at…

1. Both RSI and MACD indicators diverging negatively against price, a development that speaks to bears taking control of the trade (in green).
2. Price-wise, a ten week trend channel (in red) broke at the mid-December highs, and the stock has struggled ever since to maintain the short term MA (in blue).
3. One day’s massive volume spike (in black) barely managed to hold astride that line, indicating an ammunition burn that should give encouragement to the bears.
4. Once the break is complete, next support emerges at 41.

And it’s to that level we’ve designed today’s trade.

Like this —

A Jew and His Gold recommends you consider selling the CMC March 17^th 50/55 CALL spread* for a credit of $1.75 (3.70/1.95) and buying the CMC March 17^th 47/42 PUT spread** for $1.65 (2.50/0.85).  Total debit is $0.10.

[*Sell the 50 CALL and buy the 55 CALL.  **Buy the 47 PUT and sell the 42 PUT.]

Rationale: we can pull in $4.90 on a dime spent for a gain of 4900% (max).

Max loss is $5.10 (difference between CALL strikes plus the initial debit).

The stock’s most recent struggles indicate a death match battle between bulls and bears that the latter is now beginning to dominate.

MACD and RSI’s approaching their respective waterlines indicate that a decisive clash is but days away.

The tide has turned.

The retracement has begun.

The Creator alone knows when this one will deliver, but almost three months until expiry offers us time aplenty to watch it unfold.

May the Merciful One offer us success!

Many happy returns!

Matt McAbby

Follow @HughLOHaynew