בס״ד

Consultants of Swing (FCN)

Posted on April 19, 2021

This week’s trade is a fine one – if you’re a fan of fine.

It doesn’t offer the world, but it does get you a very large payout for your initial expenditure.

Before we get to the trade details, though, a quick word about options education and our plans to roll out what we call our Tactical Guide to the Trade.

We had hoped to send subscribers a copy of that valuable treatise last summer, but in the midst of the Batflu lockdowns we found ourselves equally locked out of several important resources (and incommunicado with a number of important colleagues) upon which (and whom) we were relying to complete the task.

With the recent lifting of the tyranny, however, we’re back at work, and hope to have copies to subscribers by Labor Day, G-d willing.

Call the Strategic Analytics Doctors!

FTI Consulting Inc. (NYSE:FCN) is a group of well-heeled egos who advise on how to both create chaos and mitigate it – in all fields of business endeavor.  Her Washington DC based consultants are globally employed to stir up mischief in the halls of any corporate entity willing to hire them, all in the name of expanding the company’s business reach or saving it money.

The company does well, in terms of earnings, but the stock has been sailing about without much rigging of late, and that’s put us in “periscope up” mode.

Now, her fundamentals don’t look particularly worrisome – at least, not if you compare her to some of those Suez-plugging floaters now roaming the investment sea.

  • Her P/E is 25.70,
  • Dividend Yield is NIL (not a crime, we know), and
  • Price to Book is only marginally inflated at 3.56.

Rather, it’s in the play of the technicals that we find cause for concern.

To wit –

  1. RSI is now coming down from an extended, month-long overbought binge (in green) at the same time that
  2. MACD is rolling over.  Taken together, these two spell trouble.
  3. All the more so, since they’re both also diverging against price (in purple).
  4. As to price itself, last Friday brought a bearish engulfing formation (in blue), very often a sign of a top.
  5. Of course, this was after a steep incline of some 40% since the last retracement low (in red).
  6. As the weekly chart (below) will also show, simple Fibonacci retracement lines would suggest a return to the bunched moving averages in the 115 range (in black).

And now to the weekly, where we find a number of signals that are Ursa Major

The weekly chart has a number of components that speak to the dangers of owning FCN –

  1. First, weekly RSI is just a day or two from overbought (in green), while
  2. MACD shows an unsustainable divergence that’s now run its course, and appears beginning to roll (in red, at bottom).
  3. Volume figures (in black) are also waning, indicating a loss of buying interest.
  4. Meanwhile price itself reveals an eight month, 90° GANN retracement angle (in red) that would indicate we’re in the latest phase of a top.
  5. Fibonacci retracements arrive at 127 and 115 (in blue).

All of which leads us to predict an immediate swing lower.

And the following smarty-pants bet –

A Jew and His Money recommends you consider selling the FCN September 17th 135/140 CALL spread for a credit of $2.70 (16.70/14.00) and buying the FCN September 17th 135/120 PUT spread for a debit of $4.90 (7.10/2.20).  Total debit on the trade is $2.20.

Rationale: with the stock expected to fall precipitously, we see the trade as well configured for a hefty take.

Selling a CALL spread to purchase the PUT spread lets us execute it for cheap.

Maximum gain is $12.80 (difference between the PUT strikes less the initial debit).

Maximum loss is $7.70 (difference between the CALL strikes plus the initial debit).

Breakeven for the trade arrives at $132.80.

With kind regards,

Hugh L. O’Haynew

 

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