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Etsy Debts Test Bullish Bets (ETSY)

Posted on January 4, 2021

So crafty, that…

We’re playing the online marketplace for all things unique and crunchy today, ETSY Inc. (NASDAQ:ETSY), because everything that rises must be purged.

Etsy has some fundamental problems, you might say.

  • From a P/E ratio of 104.28,
  • To its Price to Book of 32.52,
  • To its non-existent dividend, and
  • Its overdone debt to equity ratio of 1.67,

The stock faces a volatile future.

There’s no question the company had a couple of very impressive quarters, as the Batflu online-buying craze ratcheted up sales and earnings.

But now that we have a faux-vaccine…

Will prices remain at their current levels?

We’re arguing, no.

And insiders appear to agree with us.  They’ve dumped over $80 million (!) in stock in the last six months – a full 50.17% of their holdings.

For that reason, too, we’re suggesting the top for the stock is already behind us, and an intermediate term trend reversal is now underway.

Have a look at the daily chart –

Technicals are negative, with –

  1. RSI trending quickly toward her midway waterline after a mid-December overbought read (in green),
  2. MACD has rolled over and is now south-trending,
  3. A bearish rising wedge (in red) has now broken down, indicating the end of the most recent rise to new highs, and
  4. We’ve a gap to fill at 148.

That help your digestion?

Look now at the weekly chart –

We see negative technical energy from –

  1. The bearish engulfing pattern that popped up last week (in black),
  2. The MACD rollover (in green, at bottom), and
  3. From successive lower highs on the weekly RSI.

A simple Fibonacci retracement would drop the stock to at least 135.

And that’s what we’re betting on.

A Jew and His Money recommends you consider purchasing an ETSY March 165/155 PUT spread for $4.45 (13.55/9.10).

Rationale: downside on ETSY could be considerable, given the volatility we’re expecting in the next month.

The PUT spread has a favorable risk/reward profile, with a maximum loss equal to the initial debit of $4.45, and a maximum gain of $5.55 (difference between strikes less the initial debit).

Best of luck with it, brethren.  May the Holy One bless you with winnings only.

With kind regards,

Hugh L. O’Haynew

 

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