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Revolution Begins: Market Decapitated! (XLE,SPGI)

Posted on October 8, 2020

Got a birthday coming up?

Wedding anniversary?

Pseudo-religious, year-end gift-giving celebration?

We know, you’re sitting in the sukkah having a tea, so it may not be an opportune time to importune with such matters.

Just a heads up.

Consider the gift that keeps on giving – a subscription to A Jew and His Money.

We’ve a number of options, each priced specifically for your budget.

And they’re all found here –

Top o’ the website, under the Membership Tab.

Call it a “Plug”

Action today on a number of fronts – including the Russian, where it appears Hilarity Clinkton is about to face the music…

 

OK…, so maybe not.

Anyway, we’re moving on one open trade, so grab your pencil case and forage for something that writes.

We Begin…

We set this sucker up way back on April 27th in a note we entitled Shooting Oil in A Barrel.

It was a subversive call – and not a little contentious.  With oil trading “negative” we suggested you swoop in like a ravenous beaver and sell the XLE January 15th 40/45 CALL spread for a credit of $1.11, and then use those funds to buy the USO December 16th (2022) 3 CALL for $1.20.  Total debit was $0.09.

Today, with oil in the doldrums, the short XLE 40 CALL sells for $0.23, and we’re recommending you buy it back, leaving open both the long USO 3 CALL and the long XLE 45.

The two have a net value today of $0.92.

 

Our trade today is based on a continued, near-term negative outlook for markets and an imminent head-chopping for S&P Global Inc. (NYSE:SPGI).

KOOCHEE! KOOCHEE!

You may have heard of SPGI – they’re the capital markets people who sell information and data to investors.

Fundamentally, the stock has some interesting numbers to offer –

  • P/E is 33.4,
  • Dividend Yield is 0.76%,
  • P/B is 407.9 (they’re an information company, you know).
  • Oh, and insiders dumped $20 million worth of stock just as price was topping in July and August.  That represents 18% of their total holdings.

Now look at the daily chart –

Technically negative –

  1. RSI and MACD have been diverging against price for months (in green), and both are now threatening to go sub-waterline bearish, a development that will likely trigger a great deal of technical selling,
  2. After better than doubling, SPGI topped and turned lower, with price creating a flag formation, generally considered to be a ‘continuation’ pattern.  We’re still not clear which way the continuance will be, though the upward slope of the flag (in blue) often precedes a decline.
  3. We also have a gap to close to 304.

Daily summary: not positive.

Now look at the weekly –

The takeaway –

  1. Here, too, RSI and MACD show a weakening trend (in green), and weekly MACD has rolled lower.
  2. But more to the point, we have two, near back-to-back bearish engulfing patterns on a weekly chart, a development that should give all the SPGI bulls pause.  The second won’t be complete until the week’s out, so we may be a tad premature.  But it doesn’t look promising.

We offer you a look now at the monthly chart – not because our trade is a long term affair; it’s not.  Rather, to demonstrate that SPGI is fighting a broader technical tide that doesn’t bode well for the stock at all.

Take a peek –

Bottom line is monthly RSI got too close to 80, and that coincided with the top.

Now MACD is rolling lower, and we’re confident it won’t end until SPGI closes the gap at $304 – which happens to coincide almost perfectly with a simple Fibonacci retracement calculation (306, in blue).

Watch for it!

We’re going to play this one conservatively – though we stress it is a SPECULATIVE trade, considering the time element.

Here are the details –

A Jew and His Gold recommends you consider buying the SPGI October 23rd 350 PUT for $6.90 and selling the SPGI October 23rd 340 PUT for $3.30.  Total debit on the trade is $3.60.

Rationale: the trade foresees a decline in the price of SPGI over the next 15 days.

The short PUT pays for a nice chunk of the long.

To achieve full payout requires a decline of just 4.1% by expiry.

Breakeven for the trade is SPGI $346.40.

Maximum loss on the trade is $3.60.

Maximum gain is $6.40.

Many happy returns,

Matt McAbby

 

5 responses to “Revolution Begins: Market Decapitated! (XLE,SPGI)”

  1. Jim Rodgers says:

    Hello Matt
    Do we need to do anything with spgi today?

  2. Matt McAbby says:

    Hi Jim,
    The quick answer is, no.
    If you set the trade as specified, you should see a credit of $1000 in your account as soon as the trade clears.
    That may take a day or two, depending upon your brokerage, but your account should already reflect the new balance.
    Hope you made off well!
    Matt

  3. Jim Rodgers says:

    Thanks for the reply Matt!

  4. M T says:

    SPGI about to get interesting again?

  5. Matt McAbby says:

    bs’d
    Both weekly and monthly look ready to roll over.
    Big volume selling last week.
    Key indicators sub-waterline.
    Gonna do a deep dive on this one.
    Thanks, MT.
    Matt

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