FCX Delivers 62%… and KLA Has a Chip on its (Right) Shoulder (KLAC, FCX)

Today’s intelligence arrives amid a spate of Mohammedan terror in the State of Israel.  Twenty are dead after a month-long bloodfest by the Jew-haters we permit to dwell amongst us.

May their blood be avenged ten-fold.

And more: may we live to see the day when the entire, holy Land of Israel is liberated and drenched in the blood of His enemies.

And now we close a trade.

It’s our FCX initiative, whose details can be found HERE.

In brief, we’re holding a credit of $3.01 and three short May 20th 44 CALLs.

And with the stock now at $37.88, we say it’s time to have done.

Buy back the 44 CALLs for $0.18 each, and chick-ka-ching, you’re up $0.95 NET on an outlay of only $1.52.

And that’s 62%.

No Complaints There.

And now we move into semiconductor territory.

KLA Corp. (NYSE:KLAC) makes a host of products and systems to aid in the manufacturing of microchips for the computer industry.  Along with “light-emitting diodes” and “defect inspection review systems”, they also offer something called “microelectromechanical system manufacturing products”.

Everyone knows that playing with chips these days is like playing poker.  The entire industry has succumbed to the Batflu counterfeit, with some having already fallen precipitously, while others await their beheadings.

Intriguingly, KLA falls into both camps.

But more on that in a moment.

First, a look at her fundamentals –

• P/E is 16.08 – not bad, but going to contract.  Traditionally, the stock trades with a multiple of just 10-12x.
• Dividend Yield is a nominal 1.27%.
• Price to Book is a microelectromechanical 12.19, and
• Despite the latest Q/Q Sales and Earnings coming in stronger by 26.90% and 32.10% respectively, KLAC can’t catch a break. The stock has been declining steadily since January of this year.

Have a look at the chart –

This is the last year of daily trade, and it clearly shows –

1. Two negative formations: a nine month Head and Shoulders Pattern (in purple) and a declining triangle (in red).  Both are overlapping; both are bearish.
2. Let’s look at the H&S to begin.  The neckline for the pattern cuts horizontally at 315, putting the downside count at 175.  And that’s a long way down.  Price is currently completing the right shoulder, the last aspect of the formation.
3. The same line at 315 also marks support for the declining triangle.  That formation has a history going back to last August – meaning it’s significant.  If price declines below 315, there’s nothing to stop it from reaching the asthenosphere.
4. Price is now trapped between 315 and 345 and has succumbed to all but the long-term moving average, currently situated at 322. 
5. Once she dives below that level, we’re convinced the light-emitting diodes will go dark.

And we’re playing it like this –

A Jew and His Money recommends you consider selling the KLAC June 17^th 380 CALL for $4.70 and buying the KLAC June 17^th 260 PUT for $4.80.  Total debit on the trade is $0.10.  In order to avert a catastrophic loss, set a STOP buy on the shares at 380.

Rationale: the profit potential on this synthetic short with (widely) split strikes is unlimited (i.e., $259.90) – should KLAC go to zero.

Max loss is limited to the initial debit, $0.10, should proper STOPs be in place.

Remember, too, that an open STOP must remain at 380 until the trade is closed.  That is, should the stock rise through 380 and trigger our STOP, we must immediately set a new STOP sell at 380 to keep the trade square.  Should that order be tripped, we must again set a new STOP buy at the same level, 380.  And so on…

This is our only means of controlling against a loss greater than ten cents.

It’s our opinion that a move toward 380 is highly unlikely, and it’s for that reason we’ve set the strikes as we have.  At 380, KLAC would have to subvert every technical indication we’ve charted and set a new retracement high.

Again, a development we view as remote.

That said, the G-d of Israel decides all fates, so let us not drone hither and yon, and simply place our trust and faith in He who makest and determinest all outcomes.

May the Holy One’s will and ours be one!

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew