בס״ד

If It’s Lithium, It’s a Buy! …But Not Forever. (ALB)

Posted on January 14, 2021

Today’s trade is based on Charlotte, NC’s Albemarle Corp. (NYSE:ALB), the company with an impossible name and its own, patented method to kill us all with chemicals.

[Whisper only]: The company is involved in engineering products composed of LITHIUM.

Yes, Von Zipper, and even though electric vehicle sales are in decline over the last two years, investors are still as hyped as ever on the new technology, as anyone gambling with Tesla will gladly tell you.

Have a look here –

As for ALB, lithium is not the only song they sing, but it accounts for the majority of the ‘action’ surrounding the stock of late.

To wit – the company announced earlier in the week that it was expanding its lithium production facility in Nevada, to the thrilling roar of the EV crowd, who appear to have bought on rumor and… well, have ceased to buy ever since (see chart, below).

Democrat senatorial wins in Georgia may also have been a catalyst, as the nation edges ever closer toward a Green New Deal.

Whoa!

But we see it more as a pause before the dive.

After all, there’s only so much legitimate excitement to go around.

Overdone Fundamentals

That said, ALB will deliver earnings on February 17th, but until then, here are the company’s current vital stats –

  • P/E is a fatty 50.98,
  • Price to Book is 4.71,
  • Dividend yield is 0.84%,
  • Debt to Equity is a little heavy at 0.86,
  • Earnings per share are down 30% for the year and 36.90% Q/Q, and
  • Insiders spent the last six months selling 67.77% of their stock.  That amounts to some $60 million (not a paltry sum) – whereas only $6 million was sold in the first half of 2020.

So we had a look at the daily chart.

And it told us –

Technically, we have a bevy of bad bodings here –

  1. Worst of all, RSI is descending from an overbought read late last week (in green), while
  2. MACD is fast losing steam, and should also roll lower by early next week.
  3. Volumes spiked to twice their normal levels (in black) as all-time highs were struck,
  4. Price is trending better than 100% above her long term moving averages (in purple), and
  5. The icing on the cake – we have a double doji formation (in blue), a pattern indicative of extreme indecision that very often precedes a turn in the intermediate trend.
  6. Gaps appear at 150, 142 and 127 (circled, in red), and
  7. Simple Fibonacci retracement levels emerge at 135 and 101.

As bad as that may be, all the more damning are the weekly and monthly indicators, which show a stock that may be at the tail end of its secular move higher.

Peek away –

These are the RSI and MACD indications for the stock, and they clearly show that there’s almost nothing left to be squeezed from it.

Both RSI reads are overbought (in green), and monthly MACD climbed so fast, there’s literally no oxygen remaining to sustain the rise.

Momentum has dried.

It’s only a matter of time.

And that’s why we’re acting with a laddered PUT strategy.

As follows –

A Jew and His Gold recommends you consider buying the ALB June 18th 170 PUT for $20.30 and selling the ALB June 18th 155 and 110 PUTs for $13.30 and $3.00 respectively.  Total debit on the trade is $4.00.

Rationale: with the downside ready to hit, long PUTs are our best bet, but they’re also expensive.

By selling the 155 PUT we limit our maximum gain on the trade to $11.00, but also our cost.

The additional short 110 PUT shrinks the debit even further.

With ALB now trading for roughly $180, the trade would make us a purchaser of the stock – in a worst case scenario – at $99.

That is, should the stock drop below 110 – the strike of the naked PUT – we would have our $11.00 profit cushion from the PUT spread in hand, making our bottom line breakeven on the trade an even $99.

For our money, a purchase of ALB stock at $99 (though we hardly expect it to happen) would be a banner investment.

Maximum gain on the trade is $11.00.

Maximum loss (should ALB trade to zero) is $99.00.

Upside breakeven is $166.

Downside breakeven is $99.

May the Holy One bless you and yours through the storm.

Many happy returns,

Matt McAbby

 

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