בס״ד

700% gain on CPRT… and UPS About to Dive. (CPRT, GM, UPS)

Posted on March 22, 2021

A very quick update on last Friday’s closures –

  1. First, CPRT closed with a grand profit of $6.30, for an even 700% GAIN, and
  2. Our GM trade lost six cents ($0.06).

We found two errors, as well, both of which have now been corrected on the site.

They relate to our TTC and SAIA trades.  Please see there for updates.

And Now…

Today’s trade is about as mainstream as they come.

A Dow Transportation giant that has done very nicely during the yearlong plague of Batflu insanity (but should be doing much better) is the target of our bow and quiver today.

It’s package delivery service UPS (NYSE:UPS).

Yes, all $139 billion of it (in market cap).

Bottom line is we don’t think the company’s stock price is currently justifiable, regardless the bio-insanity that prevails – and certainly not without it.

That is to say, if we begin to return to any semblance of normalcy – as appears to be happening now – the stock will crumble.

Consider the company’s fundamentals –

  • The market has afforded this package delivery outfit a P/E multiple of 103x last year’s earnings.
  • It’s also given them a Price to Book ratio of 210!
  • Yes, she pays 2.56% annually, and that’s to her credit. But the yield will be much higher in a month or so, after the waterfall decline we’re expecting.

But more than that –

  • UPS has a Debt to Equity ratio of 37.53 and
  • EPS for the year are down by 69.80%.

Horrible.

This is a daily chart of UPS pinned against the broader transport sector, of which it’s a key component.

  1. What’s key here is that for all the gains of the last year, UPS is now underperforming her peers by a significant and growing margin (in blue).
  2. After a sharp leap higher in late July, 2020, RSI moved above 80 for the better part of a month, indicating an extreme overbought condition (in green).
  3. Since then, the stock has traded in a relatively tight range, as the chart below more clearly illustrates.

This is the weekly for UPS for the last three years –

  1. Technically, we have a weekly overbought signal from last October that has led to a strong loss of momentum ever since (circled, in red).
  2. Price has been caught in a six month descending triangle that has support at 155, but could collapse if that line doesn’t hold (top, red).
  3. A large gap down to 125 (seen on the daily chart, above) will likely have to be filled.
  4. RSI and MACD are both deteriorating – soon to be sub-waterline (in green).

We believe a test of the 155 line could come as early as this week.

And for that reason, we’re moving thus –

A Jew and His Money recommends you consider setting the August 20th 155 synthetic short for a credit of $0.75 (12.00/11.25*).  Set a STOP buy on the shares at 165.

[*Sell the 155 CALL and buy the 155 PUT]

Rationale: Option prices speak to a full-on expectation of lower prices for UPS going forward. To wit – selling CALL spreads will earn you a debit (!), and 5 point PUT spread purchases will cost you more than $5.  In other words, the market will not permit you to carve out a simple profit from a decline in UPS shares.

That being the case, a synthetic short is the best possible route for those who want to profit from any decline.

Our pairing offers us a credit from the get-go, unlimited profit potential, and a breakeven at UPS $155.75 (just 2.2% below the stock’s current value of $159.29).

Maximum loss on the trade – with proper STOPs in place – is $9.25.

With kind regards,

Hugh L. O’Haynew

 

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