Closing One For 550% & Opening Another on the Mortgage Thievery Front (COOP, ACI)

We’re backing up the truck today for a haul of cash – not gas or Bitcoin or anything else that’s value-deranged.

But before we get there, we have one to close for a very handsome return.

It’s our ACI trade, which appeared in your inbox on June 15^th in a dispatch called The Early Bird catches… the Monkey Pox.

The trade urged you to sell the ACI July 15^th 27/29 CALL spread for $0.95 and buy the ACI July 15^th 29/27 PUT spread for $1.05.  Total debit was $0.10.

And now?

The CALL spread can be repurchased for $0.60 (0.65/0.05) and the PUT spread sold for $1.25 (1.95/0.70).

Execute and you walk with $0.65 on just $0.10 spent.

And that’s a 550% return.

In under a month.

Chances are you’ll pocket a good deal more, because S&P September futures are down before the open by 25 points as we write.

Good on New Zealand Blake for taking on multiples of the trade.

And now we sit down with Mr. Cooper (NASDAQ:COOP) the mortgage machers from Coppell, Texas, who will steal from anyone who’s interested in buying, selling or otherwise transacting business in relation to a single-family home.

And fundamentally, you never saw a company look so good!

FUNDAMENTALS

• After falling 30% in the last four months, the company’s P/E now stands at a lowly 1.97.
• Dividend Yield is ZILCH.
• Price to Book is 0.69.
• Beyond that, Debt to Equity is a troublesome 2.17, and
• Earnings for the next five years – according to analyst consensus – are expected to FALL by 8.54% per year.

It appears investors are pricing in a top in the housing market, as the charts (below) will show.

This is the daily –

Technically,

1. We have an overbought RSI read (in green) that led to sub-waterline action from both RSI and MACD indicators.  Meaning the bears are now clearly in charge.
2. Two of four moving averages are trending lower, and the short term MA has nearly rolled below all her brethren (in black).  That puts a short-term lid on price at $39.50 and falling.
3. Price itself has broken below a five-month descending triangle (in red), though it still clings stubbornly to that lower support line at $38 (in blue).  That level also aligns with the long term MA.  Below 38, there is no further support on the daily chart.

Here’s the weekly –

The technicals here are equally damning…

1. First, weekly RSI went sub-waterline two months back and MACD last week followed suit (in green).  This is a tremendously bearish indication and should trigger meaningful additional selling this week.
2. All of this comes on the heels of a nine month Head and Shoulders pattern (in red) that marks the top for the stock.  Critically, the neckline on the formation was broken four weeks ago (in blue), meaning the downside count to $23 will likely be fulfilled in the months ahead (in black).
3. That said, the stock has found support in the meantime at $36 (in purple).  Next stop lower should bring price to $30.

And that’s our expectation in crafting the following –

A Jew and His Money recommends you consider setting the COOP September 16^th 40 synthetic short* for a debit of $3.00 (2.00/5.00).  Set a STOP buy on the shares at 40 to avoid any runaway losses.

[*Sell the 40 CALL and buy the 40 PUT.]

Rationale: the trade offers a maximum theoretical gain of $37.00 (should COOP go bankrupt), and

A max loss of $3.00.

Breakeven occurs at $37.00 – $0.35 below the stock’s current price (just nine tenths of one percent).

The STOP is set above the descending short-term (daily) moving average, meaning there’s less of a chance it will be triggered.

In the event that it is, however, we’ll need to reset a STOP sell at the same level (40) to keep the trade square.

And if that’s tripped, we’ll have to reset another STOP buy there, ad infinitum.

An open STOP must remain in place until the trade is closed or we reconfigure for an early profit.

The G-d of Israel is with all those who stand the test.

Who don’t give up.

And who are on the side of kedusha and Truth.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew