Lightning WINNINGS – 2600% and 5833%! The Switch Has Been Flicked (AYI, EL, RH)

Pay attention –

We’re closing two enormous trades that were just opened over the last few weeks.

The first is our Estee Lauder initiative from May 3^rd.

The directive was called Calling All Aspiring Cosmeticians, and it urged you to sell the EL October 16^th 360 CALL for $5.30, and buy the EL October 16^th 250 PUT for $4.70.  Total credit was $0.60.

And today?

The long PUT sells for $5.60 and the short CALL goes for $2.15.

Sell the first and buy back the second, and you net $4.05 on ZILCH laid out.

WOO-HOO!

Adjusted for minimal commissions gives you a ten day haul of 2600%!

Just Watch!

Next up is our Restoration Hardware trade of April 29^th.  The letter was called PURE MOMENTUM.  There’s Precisely No Value Here, and there, you’ll recall, we recommended you sell the RH August 20^th 1000 CALL for $8.30 and buy the RH August 20^th 480 PUT for $8.20.  Total credit was $0.10.

And now?

The long PUT is fetching $12.30 and the short CALL goes for $3.50.

Sell the former and buy back the latter, and you take home $8.90 on NOTHING spent.

Adjusted for minimal commissions gives you a TWO WEEK win of 5833%!

Today’s trade goes after the lighting business, and Acuity Brands (NYSE:AYI), in particular.

Because the party’s over.

Turn out the lights…

Acuity doesn’t possess the best fundamentals, to be sure.

Consider –

• She’s got a P/E of 26.97, and
• A Dividend Yield of just 0.29%.
• Her P/B is a thickly 3.37, while
• Earnings for the year are down 24.00%.

The technicals leave a lot to be desired, as well.

Here’s the daily chart –

To begin –

1. RSI registered overbought just over two weeks ago (in green), and is now on its way below the mid-way waterline.  When that happens, we’ll have an additional bearish signal.
2. MACD is also rolling over, and when it confirms with a sub-waterline read of its own, we’ll likely see more technical selling.
3. After a 50% rise in just six weeks that also formed a bearish rising wedge (in red) – the pattern has now cracked, and that means SELL.
4. Moreover, it happened on the same day that a bearish engulfing pattern (enlarged, in blue) also struck.
5. We now have two gaps to fill on the downside, the first at 146, thereafter at 135 (in purple).

The weekly chart is also damning.

Have a gander –

1. To begin, the weekly RSI overbought signal (in green), occurring simultaneously with the daily, makes a very loud ringing sound (with lights flashing, too).
2. MACD is also rolling lower, while
3. A bearish engulfing pattern (in blue) is like incandescent icing on the bears’ cake.
4. Which is why we see an imminent pullback to at least the first Fibonacci retracement marker at 146 (in purple) – which also aligns with the large gap to 146 on the daily chart above.

And we’re playing it as follows –

A Jew and His Gold recommends you consider selling the AYI November 19^th 220 CALL for $6.70 and buying the AYI November 19^th 140 PUT for $5.80.  Total credit on the trade is $0.90.  Set a stop buy for the shares at 220.

Rationale:  the trade is a synthetic short with split strikes.

The strikes we’ve selected for the trade are $40 OTM in both directions (current price is $180.72).

We see the probability of the STOP buy being triggered as minimal, considering

1. the current market reality,
2. the stock’s recent performance and
3. the company’s next earnings date (still seven weeks out).

All the same, should the STOP be triggered, reset a STOP sell for the shares at the same 220 level in order to keep the trade square.  And again, should that STOP be activated, reset the STOP buy.  There should always be an open STOP in place at 220 until the trade is closed.

We’ll very likely close the trade long before expiry, as the PUT’s value begins to overwhelm that of the CALL.

Maximum gain on the trade is unlimited.

Maximum loss is NIL (with proper STOPs in place).

Many happy returns,

Matt McAbby

Follow @HughLOHaynew