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Slow Down, You Move Too Fast… RUSH STREET Stumbles! (RSI)

Posted on April 8, 2021

We’re walking up and down Rush Street Interactive (NYSE:RSI) today, in a move that bucks against all our better instincts.


Well, it’s not like us to take on a trade with an underlying that was listed just a year ago.

There’s almost nothing predictable from a stock like that, and the likelihood of it rocketing higher – or bottoming out completely – is about equal.

That said, we’ve decided to venture in the slipstream with this newfound gambling platform, and let the risks be damned!

Why?

Well, we start with a (circumspect) look at the company’s fundamentals – such as they are:

That’s right.

No Earnings, no Dividend, no Book Value.

And it’s that winning trio that’s produced a fairly sizeable short position on the stock, which, in itself, presents a danger to those, like us, expecting additional downside.

But it’s really the technical picture that convinced us the time is ripe to act on this wounded puppy, and to expect a measured decline in the months ahead.

Have a look –

The breakdown’s like this –

  1. After an overbought RSI read in December (circled, in red),
  2. Both RSI and MACD diverged lower against price, and
  3. In mid-February both moved sub-waterline bearish (in green).
  4. Price also pulled back, forming a bearish descending triangle pattern (in red) with support at $15.
  5. Mid-March earnings caused a temporary volume and price spike that quickly lost enthusiasm (in black), while
  6. Downside pressure continues to build from a) the descending top of the triangle and b) the rollover of the short-term moving averages (in blue).

All of which points us toward the following trade –

A Jew and His Gold recommends you consider setting the RSI July 16th 20 synthetic short* for a debit of $4.75 (1.35/6.10).  Set a STOP buy on the shares at $20.

[*Sell the 20 CALL and buy the 20 PUT.]

Rationale: With the current price of the stock at $15.53, our breakeven arrives at $15.25 (after a decline of just 1.8%).

Maximum gain on the trade is unlimited.

Maximum loss is limited to our initial debit of $4.75 – with proper STOPs in place.

Remember, should the STOP be triggered (an eventuality we deem far-fetched under current market conditions, as price would have to rise an unlikely 30%), you should reset a STOP sell at the same $20 level.  That will keep the trade square.  And if that STOP is triggered, you’ll have to reset the STOP buy again at $20.  And so on…

Many happy returns,

Matt McAbby

 

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