Another Math Stooge Bites the Dust (VRSK)

Don’t look now, friends, but Australia is Nazi Germany.

The evil’s proliferating.

But the good guys are waking up.

And the war will eventually settle it…

In G-d’s favor.

Alan B. Harvard will be chiming in shortly on the state of the world, on the cataclysmic breakdown that awaits us all, and the unexpected New World Order that will replace it.

Stay tuned…

Today’s Trade

We’re going straight for the jugular today, with an eye to shechting Jersey City’s Verisk Analytics Inc. (NASDAQ:VRSK), a company that purports to engage in something called ‘data analytics’.

All of which means that outside of their insurance underwriting arm, they’re likely perpetrating a giant fraud on their remaining customers.

Fundamentally, we have a company with…

• A Price/Earnings ratio of 48.06,
• A Dividend Yield of 0.58%,
• A Price/Book ratio of 11.76, and
• Not enough cash on hand to pay their short term debt obligations.

The company has been growing via acquisitions in an effort to diversify, but digesting the meal is always a greater challenge than swallowing it.

That said, we’re betting on a roughly fifteen percent slide in the stock price in the intermediate term, both because the broad market is retrenching, and because Verisk appears to have run out of supporters.

The charts speak directly to that contention.

Here’s the daily –

The technical breakdown is as follows –

1. RSI registered an overbought 80 signal at the beginning of September (in green),
2. Triggering a loss of confidence (and buying momentum) ever since, as seen in the steep negative divergence against price (green arrows).
3. RSI has now slipped below its all-important waterline (circled, in red), and MACD should follow suit within eight to ten days.  Once that happens, we should see very heavy selling (if not before).
4. Price-wise, we have a break below a four month trendline (in red) after setting new highs.
5. That break also pulled price below her short term moving average, which is now rolling over (in blue).
6. Next support arrives at the rising MAs in the 185-190 range (in black).
7. Finally, the stock’s latest highs at 210 match highs set at New Year’s (not seen on chart), forming a major double-top for the stock – a significant negative omen.

And it’s for all the foregoing that we’re now packaging the following bundle of options dynamite for your peckish profit penchant –

A Jew and His Money recommends you consider selling the VRSK December 17^th 200/210 CALL spread* for a credit of $3.00 (7.60/4.60) and buying the VRSK December 17^th 200/190 PUT spread** for $4.60 (8.90/4.30).  Total debit on the trade is $1.60.

[*Sell the 200 CALL and buy the 210 CALL.  **Buy the 200 PUT and sell the 190 PUT.]

Rationale: the trade requires a comfortable outlay of just $1.60 to pocket a maximum $8.40 return – and we believe the deal can be done inside a month.

That said, maximum loss is $11.60 (difference between the CALL strikes plus the initial credit).

We start making money at $198.40 – a mere eighth of one percent below the current price.

As for the maximum loss scenario – we view it as very unlikely in the near term, as price would have to regain her old trendline and race toward setting new highs.

Given the technical damage already sustained – and the current fragility in the market – we figure it’s safe to all but ignore that possibility.

A bounce higher after a steep swoon, yes.

But a march to new highs at this stage – not so much.

May the Lord of Hosts offer you only good tidings.

!בשורות טובות

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew