TITAN INTERNATIONAL Raises 2022 Full Year Guidance – Stock Peaks, Powers Lower… And We Grab a 906% Return! (TWI, TGNA)

Everything seemed to be going well for shareholders of Titan International (NYSE:TWI), until the company went and opened its big, rubber-coated mouth…

Dateline: June 15^th, TWI issues press release confirming former guidance, adding that analysts should expect an additional 10% from sales and adjusted EBITDA, proudly concluding that the coming year would be the “strongest performance in its history.”

Indeed, earnings adjustments have been coming in higher over the last month for this momentum-rich industrial, but price has done nothing but fall.

There’s a disconnect occurring here that’s worthy of mention, and we hope to point it up in a moment.

But first, we have a wonderful profit on the table from our June 9^th TGNA initiative, so let’s make a quick detour there to gather it up.

The letter was called Something to Hide? and it urged you to sell short TGNA shares at $21.17, and buy the July 15th 23 protective CALL for $0.10.  Total credit was $21.07.

And now?

The shares exchange hands for $19.56, and we say dump ‘em.

That puts $1.51 in your pocket on ZERO laid out, and that’s right fine.

Adjusted for minimal commissions gives you a 35 day return of 906%.

Barring a last-minute discovery of buried treasure, the long CALL should expire worthless.  Leave it be.

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And now for the cake, the icing and a cone of the butter pecan.

You see how it works…?

Anyway, as mentioned above, TWI is a tire and wheel outfit whose stock gains have made literally no sense over the last two years.

As the charts below will show, this small-cap, old-school manufacturer has given shareholders a 1200% gain in 23 months (all the sugar), with barely a hiccup – until, that is, the June 15^th debacle struck.

And now?

TWI shareholders are anything but happy.

What happened to their pep rally?

Where’s the momentum?

ALL DOWN…

Our trade today is predicated on numbers that just don’t add up.

A look at the fundamentals is where we start our story (last earnings were presented on May 2^nd).

• P/E is 15.05, which would be forgivable, if not for Forward P/E, which analysts are pegging to be at 6.46 a year out.  That number doesn’t leave any room for play.  It means TWI has to more than double its earnings to maintain its current price, or lose roughly 60%, given the multiple analysts are now setting.  In other words, no one has confidence the stock will still be trading in the $14 range next summer.
• There’s NO Dividend on offer.
• Price to Book is 3.65.
• Debt/Equity is stretched at 2.13.

Now have a look at the daily chart –

1. Here, we have both RSI and MACD sub-waterline bearish (in green).  Momentum is clearly with the bears.
2. Volume is picking up, but still hasn’t peaked as price declines (in black).  That means the selling has yet to climax.  And that means there’s more in store.
3. The short-term moving average has rolled over, putting a lid on price at $16.50 and falling (in blue), and…
4. At the same time, price is barely clinging to the rising 137 day moving average (in red).  This level is critical, as moves above or below it almost always signal intermediate trend changes.  A clean break below $14 would likely find support only at $11, where the rising 274 DMA now resides (in purple).

Now look at the weekly –

Technically, the weekly picture is worse than the daily.

1. An overbought weekly RSI indication in March has since plunged, and now rests on its all-important, mid-way waterline (in green).  Any move beneath that marker would be perceived by technicians as bearish, and, indeed, we expect it to occur this week.
2. Likewise, weekly MACD has rolled over, adding weight to the bearish thesis.
3. Price traced out a bearish engulfing pattern at the top of the move in early June (in blue), a powerful bearish indicator, and on a weekly chart, it suggests an immediate change in trend.
4. From the weekly perspective, the bunched MAs in the $8 range (in red) offer strong support.  But between current price (in black) and that level – there ain’t no net, friends.

We usually don’t introduce hourly- and minute-based charts into our discussions, largely because our trades are based on longer time frames, and because the minute and hourly charts happen to be far less reliable.  That said, we always check them, and we thought we’d include one today to help you decide TWI’s immediate fate –

This is TWI at fifteen-minute intervals for the last two weeks.

1. Note the head and shoulders pattern of the last six days (in blue),
2. And the neckline, which is nearly broken (in black).  Once price sunders that line, it’s all over.  We should see a quick move to…
3. Close the gap that awaits filling through $13.30 (in purple).
4. In our view, the selling to that level will likely see some follow through from technicians trading the daily and weekly charts, as well, and will likely kneecap the stock altogether.
5. Last Thursday, RSI went overbought, and since then both RSI and MACD have been diverging lower against price (in green).  Again, bears have taken control of the move, and we expect the declines to begin in earnest in the coming days. 

And for all the foregoing, we now offer you this –

A Jew and His Gold recommends you consider setting the TWI October 21^st 15 synthetic short* for a debit of $1.20 (1.50/2.70).  Set a STOP buy on the shares at $15 to avoid any catastrophic loss.

[*Sell the 15 CALL and buy the 15 PUT.]

Rationale: breakeven on the trade arrives at $13.80, just a nickel below current price.

Max gain (theoretical) is $13.80.

Max loss is $1.20 – provided proper STOPs are in place.

To that end, if the STOP buy is triggered at $15, you will have to reset a STOP sell at $15 to keep the trade square.  Should that STOP be executed, a new STOP buy will have to be emplaced, again, at $15.  Ad infinitum.

So long as the trade is open, there should be an open STOP at $15.

And may the Holy One of Israel give you chein and mazal.

Many happy returns!

Matt McAbby

Follow @HughLOHaynew