Industrial Fakery (TEX)

According to their most recent literature, Terex Corp. (NYSE:TEX) manufactures and sells “aerial work platforms” and “materials processing machinery” for the construction, infrastructure, recycling, quarrying and mining industries.

In other words, they’re an old-line industrial operation.

So how is it investors decided it should be a momentum stock?

G-d only knows…

• This is a stock with a P/E of 13.44…
• That pays an annual Dividend of 1.03%, and…
• Carries a P/B of 3.34.  Fine, but…
• Sales over the last five years have grown by a weak-kneed 0.20% per annum.
• In fact, so bad is the situation today that insiders have dropped 32.55% of their holdings in the last half year, with a full 82% of the dump occurring in THE LAST TWO WEEKS!

We don’t like the smell of that, and we don’t believe it’s a coincidence that the selling occurred directly after the latest earnings release on February 10^th.

TEX managed to beat on both earnings and sales, but the stock has only climbed one half of one percent since then.

Maybe because all those insiders are bailing…?

Either way, it doesn’t look good.

Take a peek now at the technicals—

Bottom line is like this—

1. RSI touched the overbought line ten sessions back (in green) and has since declined.
2. MACD appears to have had enough, as well.
3. Price-wise, the stock managed a 118% gain since July (in red)…
4. The last two months of which saw the development of a tight, rising trend channel (in blue) that looks close to exhausting itself.
5. Volumes increased significantly at the top (in black), indicating a potential distribution of stock to dumber money (by insiders).
6. Strong support is found at the rising 137 DMA at 41 (light blue), and…
7. A simple Fibonacci retracement calculation sees a decline to either 46 or 39.

Neither of which we require to cash in fully on today’s trade.

Like this—

A Jew and His Money recommends you consider selling the TEX July 21^st 55/60 CALL spread* for a credit of $2.50 (7.70/5.20) and buying the TEX July 21^st 60/55 PUT spread** for $2.80 (6.40/3.60).  Total debit on the affair is $0.30.

[*Sell the 55 CALL and buy the 60 CALL. **Buy the 60 PUT and sell the 55 PUT.]

Rationale:  just thirty cents buys you a chance to win $4.70 (a profit of 1567%).

Max loss is $5.30 (difference between the CALL strikes plus the initial debit).

Just a 5.7% decline over the next five months will deliver us the full trove on this one.

And that shouldn’t be too onerous a task; TEX has a very high beta of 1.73, meaning when the market declines by one percent, TEX drops by 1.73%.

So all we really require is a pullback on the S&P 500 of 3%.

And is that too difficult for the Creator of Heaven and Earth to accomplish…?

GOTTA BELIEVE!

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew