The Early Bird Catches… The Monkey Pox! (ACI, SAIA, IBP)

We’re coming at you early this week, to take advantage of some excellent pricing.

A Grocery Store, friends, is the vehicle Hashem has chosen today to transport us to financial freedom.

But before we get to the trade, we have two to close.

Sharpen your pencils and sit up straight.

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First up is our SAIA trade, whose details can be found HERE.

In brief, we’re holding three short June 17th 200 CALLs and a credit of $15.50.

The CALLs sell for $2.65 each, and we say buy them back.

Get it done and you walk with $7.55 NET on an initial expenditure of $28.90.

And that’s a gain of 26%.

Seven Hundred Fifty Five Bucks!

Next is our IBP trade that sees us holding two short June 17^th 90 CALLs and a credit of $9.91.

The CALLs can be repurchased for $2.90 each, and we say it’s time.

Execute and you pocket $4.11 NET on nothing laid out (trade was opened with a credit of $0.20).

Adjusted for minimal commissions gives you a 2773% profit.

And that makes it all worthwhile…

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And now to Albertson’s (NYSE:ACI), the aforementioned Idahoan grocery that beat on revenues and earnings two months back – but still lost better than 20% in the weeks that followed.

What’s more amazing is that directly following that decline we saw an incomprehensible rise of better than 20% on the stock.

The shares are manic.

And everyone’s trying to figure who holds the upper hand – bulls or bears.

But our charts below make it abundantly clear.

In a moment.

First, the fundamentals.

• ACI trades with a P/E of 11.10 and a forward P/E of 9.78, meaning analysts are gun-shy about expanding the current, miniscule multiple for the year to come.
• Dividend Yield is 1.70%,
• Price to Book is oversize at 4.52,
• Debt to Equity is much too large at 2.63.
• As to earnings, analyst consensus sees growth of just 2.41% for the coming year, and
• For the next five years, anemic growth of just 0.06% (!) per annum, on average.

In other words, the stock ain’t goin’ nowhere.

And why is that…?

Retail-generated research shows people making fewer trips to the mall, but larger grocery purchases, on average, per shop.

You can bet they’re cutting out the non-essentials, too.

And all a result of price inflation, including gas costs, which are now starting to bite.

As the chart below shows –

This is the daily for the last year, and it clearly shows –

1. Bears in control, with both RSI and MACD indicators sub-waterline and heading lower (in green).
2. After ten months of swerving within a range (in red),
3. Price is now carving out a clear descending triangle (in blue), a bearish formation that triggers significant selling once the stock cuts below support – in this case at $26.50.
4. A gap that needs filling at 25 (in purple) aligns with the rising long-term MA (in black), and that’s where we see the stock touching before the current move is over.

Now check out the weekly –

This is the same, full year of chartitude for ACI, and it presents –

1. Weekly RSI and MACD diverging strongly against price for nine and six months, respectively (green arrows), indicating bulls continue to relinquish control to the shorts.
2. That, after weekly RSI went overbought last summer (circled, in red), an ominous signal in itself.
3. Weekly RSI is sub-waterline bearish at present, and MACD is expected to splash lower in the week ahead.
4. For the sake of clarity, we’ve traced out in blue a ten-month, head and shoulders reversal pattern here (and not on the daily paste-up).  The neckline (in black) is found at the same 26.50 mark, making for a potential downside count on the formation to $14.

That could take some time to ensue – if it does – but we’re not betting on it over the short term.

Our trade requires a far more modest retreat to cash in.  But it’s SPECULATIVE.

Check it out –

A Jew and His Gold recommends you consider selling the ACI July 15^th 27/29 CALL spread* for a credit of $0.95 (2.30/1.35) and buying the ACI July 15^th 29/27 PUT spread** for $1.05 (1.80/0.75).  Total debit on the trade is $0.10.

[*Sell the 27 CALL and buy the 29 CALL.  **Buy the 29 PUT and sell the 27 PUT.]

Rationale: the trade holds the promise of $1.90 NET on a $0.10 investment.  That’s 1900%.

Max loss is $2.10 (difference between the CALL strikes plus the initial debit).

Breakeven is $27.90, just $0.64 below price at the time of writing (2.2%).

We label the trade SPECULATIVE because it expires in exactly 30 days – a shorter time period than we’re used to offering.

That said, the G-d Of Israel will have His way.

Many happy returns!

Matt McAbby

Follow @HughLOHaynew