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BALLderdash! How One Man’s Bounce is Another Man’s Burden (BLL)

Posted on December 7, 2020

The market’s stretched.

Extraordinarily so.

Sentiment is as bullish across the board as we’ve ever seen it.

Main Street, Wall Street, Letter writers (like us), Hedgies, everyone…

They’re all in.

And that doesn’t bode well.

We have a situation now that’s just waiting for a catalyst to spark the selling.

And what might it be?

Brexit news?

Not likely; it’s already baked in .

Vaccination rollout?

Meh.

Georgia run-off?

Small-time.

It’s a longshot, admittedly, but we’re growing more and more convinced that…

Well, let’s put it this way –

We’ve a hunch the current President is going to announce his re-election to the office of Chief Executive in the coming weeks.

And when that happens, the rumbling and cacophony that ensues is going to make Jericho’s collapse look like a weekend Pop Warner contest.

Our trade today is based on Broomfield Colorado’s Ball Corp. (NYSE:BLL), beverage packagers extraordinaire, whose stock has looked downright space-age-bloated of late.

If we get that above-mentioned pullback, Ball stock will roll like the dice back at Jackie Schwartz’s Feather and Lace Club in Canarsie.

Before we turn to the charts, though, take a gander at the following fundamental numerage –

  • Price /Earnings (TTM) is a stratospheric 60.55,
  • Dividend Yield, a lowly 0.64%, and
  • Price to Book a celestial 10.65x.
  • Beyond that, the company’s debt/equity ratio is a forbidding 2.67.

Nothing here to write home about.

Now look at the daily chart –

This is BLL stock since January 1, and as you can see

  1. After an overbought RSI read in September (circled, in red), we see negative divergence from the Relative Strength Indicator, and
  2. The same from MACD since mid-October (both in green).
  3. RSI is now sub-waterline, and MACD looks likely to confirm by week’s end.  If/when this occurs, we’ll see a good horde of technical sellers enter the trading mix.
  4. On the price front, BLL has now broken below a three month trend channel (in red),
  5. Lost her short-term moving average (in blue),
  6. Left gaps to fill at 87 and 83 (in black), and
  7. Computes a simple Fibonacci retracement to either 83 or 71 (in purple).

And That’s The Good News!

Now have a peek at the weekly chart, where both RSI and MACD indicators are also showing weakness (in green, below).

Have a look –

  1. MACD is in the process of rolling over, and
  2. A fourteen month reverse head and shoulders pattern (in blue) – including the full upside gain for the move (in black) – has now been pocketed.

All told, it’s little more than a cracked jar, friends.

And the downside awaits.

A Jew and His Money recommends you consider selling the BLL February 19th 92.50/97.50 CALL spread for $2.20 (5.90/3.70) and buying the BLL February 19th 92.50/82.50 PUT spread for $3.00 (4.40/1.40).  Total debit on the trade is $0.80.

Rationale: we want downside exposure on Ball Corp. for as little cost as possible.

The long PUT spread – paid for in part by the short CALL spread – offers us a safe way to do that.

The strikes have been selected with Fibonacci retracement levels in mind, as well as the gaps that need filling.

Our maximum loss on the trade will be $5.80 (difference between the short CALL strikes plus initial debit), and occurs if BLL closes above $97.50 at expiry.

Maximum gain on the trade is $9.20.

Breakeven is $91.70 (2.6% below the current stock price of $94.16).

With kind regards,

Hugh L. O’Haynew

 

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