The Jeanie’s Out Of The Bottle! (LEVI)

A declaration of war is not a thing to be taken lightly.

So when the holy tribe of Levi issues a warning to the denizens of Shechem to prepare for battle, one would surmise that those with an operating cogitative function would take heed, prepare for the worst and – at the very least – pray.

But it’s not so.

Heedless as they ever were, they appear to prefer the fate of their forebears.

So let it be written.

And in the midst of that initial fog of war, let us now take a closer look at the descendants of the warrior tribe, LEVI, the better to examine their pant-making acumen…

Fog, indeed!

Speak only in whispers.

And may G-d be with you.

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The cryptic nature of today’s posting is necessary only to throw off the evil Erev Rav.

Surely, you understand.

Levi Strauss Inc. (NYSE:LEVI) has been selling jeans and other casual apparel for better than a century and a half.  For a much briefer period, however, their stock price has lacked the rivets and durability that made the original product so legendary.

Today, she’s detached, frayed and ready for an embarrassing rip lower.

Consider the fundamentals –

• P/E is non-existent,
• Dividend Yield is a nominal 0.88%,
• Price to Book is unwieldy at 7.73,
• Debt to Equity is a stretchy1.46,
• Earnings this past year are down 133%, and
• Over the last six months, insiders have unloaded 40.95% of their stock.  In just the last three months, the dollar figure of those sales exceeded $130 million!

Could it be the Jeanie’s out of the bottle?

Don’t say it…

But have a look at the daily –

This is a year’s worth of LEVI chartitude, and it presents the following –

1. First, following an overbought RSI signal (in red, at bottom), both RSI and MACD diverged negative against price (in green).
2. RSI is now sub-waterline bearish, and MACD is just days from confirming with an aqua submergence of its own.  Once that occurs, the selling, we believe will be frantic.
3. Price is now holding (barely) above support at $27, where the lower edge of a rising trend channel awaits its bloody sunder (in red, of course).
4. Were that to occur, likely support resides at 23/24, then 18/19, where both the rising moving averages and Fibonacci retracement levels coincide almost perfectly (purple and blue).

We’re going to leave it to the market to decide where this one ends up.

And we’ll play it like this –

A Jew and His Gold recommends you consider setting the LEVI October 15^th 31 synthetic short** for a debit of $4.20 (5.20/1.00).  Set a STOP buy order on the shares at $31.

[**Sell the CALL and buy the PUT]

Rationale: with the downside waiting, our trade offers open-ended, unlimited profit potential.

Maximum loss (with proper STOPs in place) is limited to our initial debit.

Breakeven on the trade arrives at $26.80 (just 1.4% below the current price of $27.20).

After that, it’s a stone-washed bank robbery.

As mentioned above, 23/24 is a likely first stop.  Depending upon how fast that target is reached – and the technical condition of the stock at that hour – we’ll determine whether to close.

The 31 strike was chosen because it resides above the stock’s all-time high, and therefore out of reach at this stage of the rally.  All the same, should our STOP buy be triggered, be sure to reset a STOP sell at the same level, in order to keep the trade square.  Should that STOP get activated, reset a STOP buy at 31.  And so on, until the trade is closed.

Many happy returns,

Matt McAbby

Follow @HughLOHaynew