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Extraordinary Profits: 1440% & 203%! And a Little Head and Shoulders Maintenance on Grainger (GWW, PZZA, NUE)

Posted on January 24, 2022

At the time of writing, our preferred chart provider (for better than 20 years) has had a malfunction.

The chart you find below is filling in – temporarily, we hope.

Today’s Trade!

We’re unleashing all the tools today against W.W. Grainger, Inc. (NYSE:GWW), Chicagoland’s industry supply company par excellence.

You may know the company as a dividend monarch, never having missed a payout in over 50 years!

But more on that in a moment.

First, we’ve got money to BANK!

Show us the CA$H!

We start with last Friday’s options expiry, that saw your PZZA trade close on its own.

And a right good, double cheese decision that was!

PZZA shares closed the week at $114.38 and we exited the trade with a NET $1.32 on just $0.65 spent.

And that’s a very substantial 203% win.

What Else Winnie?

We’re also closing our NUE initiative, launched just ten days ago in Take a Ride on The Big Steel Rail.  There, we urged you to sell the NUE April 14th 110/115 CALL spread for a credit of $2.35 and buy the NUE April 14th 110/105 PUT spread for $2.30.  Total credit was $0.05.

And now?

The CALL spread can be repurchased for $1.09 (3.35/2.26) while the long PUT spread will fetch you $3.45 (20.20/16.75).

Execute that, and you allemande left to a profit of $2.31 on NOTHING spent!

Adjusted for minimal commissions gives you an incredible 1440%!

In just ten days!

And that’s worth all the soda you can drink between sashays.

Let’s begin today’s caper with a look at GWW’s fundamentals.

And remember, this is an industrial services company.

To begin –

  • P/E is 27.92 (i.e., too high),
  • Annual Yield is 1.31%,
  • Price to Book is 13.98 (!),
  • Debt to Equity is on the high side at 1.30,
  • EPS FELL this year by 16.60%,
  • And grew by just 2.30% over the last five years.

So why is the stock still hovering close to its all-time highs?

Let’s look at the chart –

Technically, there’s evidence that Grainger shareholders will soon kiss those levels goodbye.

  1. First, RSI struck overbought territory back in November and has been diverging against price ever since (in green).  That’s a sign buying momentum is drying up.
  2. MACD, too, has been diverging lower, and as early as today will likely go sub-waterline, confirming RSI’s bearish dive below that marker some ten sessions ago.
  3. Price-wise, we see a bearish head-and-shoulders topping pattern (in red), with the neckline now broken (in blue).  Meaning: we’re perched on the precipice, and a fall is imminent.
  4. Supporting that contention is last Friday’s candle – a bearish gravestone doji – that’s sitting directly on the short-term moving average (in purple), GWW’s last line of support before a potential tumble to 440.
  5. Downside count on the head-and-shoulders pattern aligns perfectly with the above, suggesting a price drop to 442 (in black).
  6. A gap that needs filling through 430 (in brown) also suggests a fall to that range.

All of which leads us to the following laddered PUT spread strategy.

And it goes like this…

A Jew and His Money recommends you consider buying the GWW April 14th 490 PUT for $28.20 and selling both the GWW April 14th 470 PUT for $16.40 and the GWW April 14th 440 PUT for $9.80.  Total debit on the affair is $2.00.

Rationale: best case scenario on the trade is a profit of $18.00.  That will occur if GWW declines to anywhere between 470 and 440 by expiry.  Not bad, either, if you consider that you’re only fronting $2.00 for the opportunity (900% return).

Worst case scenario would involve a drop below 422, at which point the trade would start bleeding.

In the event of a move below 440, we would advise shorting the stock, as that would simply cancel any losses on the open short 440 PUT and safeguard your profit.  You could also place the short anywhere between 440 and 422 to safeguard just a portion of your profits.

Breakeven on the trade arrives at 488, exactly one percent below the current price level.

Full profits are secured with a drop of just 4.6%!

Grainger hasn’t yet succumbed to the general weakness in the market, but that doesn’t mean it won’t.

It’s simply a latecomer to the bear bash.

But a’bashed it will be…

With help from the Al-mighty, who sees and knows all.

With kind regards,

Hugh L. O’Haynew

 

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