בס״ד

96% PROFIT, While The Batflu Hammer Drops on The Credulous (KAI, IYT/DIA)

Posted on April 5, 2021

Before today’s trade, we have one to close.

Our IYT/DIA pairing finally closed last Thursday with a clever little profit.

The details of the trade can be found HERE.

In short, we were holding two short DIA April 1st 335 CALLs and a credit of $1.72.

The CALLs expired OTM worthless and we walked with the cash.

That’s $1.72 net on $1.80 laid out.

A profit of 96%.

And that beats an April snowfall, any day.

Today’s trade is based on Westford, Massachusetts’ Kadant Inc. (NYSE:KAI), makers of industrial machinery for nearly every application going.

Without boring you with all the unnecessary details (and certainly without a discussion of the company’s ‘conveying and vibratory equipment’ or its applications for ‘oil and grease absorption’ – we’re a PG rated outfit), we’ll have a look at the fundamentals.

In a word, they’re overdone.

  • P/E is 39.17,
  • P/B is 4.34, and
  • Dividend yield is a mere 0.53%.

But what’s in a number, right? – in these days of Batflu-bolstered market bunk.

Pictures are better.

Try on this one –

Technically, we’ve got –

  1. An overbought RSI indication (in green),
  2. A MACD rollover (also in green),
  3. Plenty of negative divergence from price (in purple),
  4. A completed reverse head and shoulders count higher (in blue),
  5. After a 256% rise off the March, 2020 bottom (in red),
  6. On a sesame seed bun.

What you don’t see above, but what’s equally important, is two overbought RSI indications on the weekly and monthly charts.

Taken together, we see a topping process now in play that may take many a moon to recover from.

And that’s why we’re recommending thus –

A Jew and His Money recommends you consider buying the KAI October 15th 195 PUT for 28 and selling the KAI October 15th 180 CALL for 18.  Total debit on the trade is $10.  Set a STOP buy on the shares at 195.

Rationale: Breakeven on the trade arrives at exactly $182.50 – just 2.3% below the current price of $186.94.

We expect a decline toward the 140 level, where the rising 137 day moving average is currently situated, and a Fibonacci retracement marker now resides.

Maximum gain on the trade is unlimited.

Maximum loss – with proper STOPs in place – is $25.

Remember, an open STOP at 195 must be in place until the trade is closed in order to keep the trade square.  If the STOP buy gets triggered, set a STOP sell at 195.  If that gets flicked, reset the STOP buy at 195.  And so on…

With kind regards,

Hugh L. O’Haynew

 

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