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

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 15^th 195 PUT for 28 and selling the KAI October 15^th 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

Follow @HughLOHaynew