Posted on April 12, 2021
Atkore Inc. (NYSE:ATKR) is one of those companies you never heard of, that actually produces things people need.
They manufacture and distribute just about everything connected with electricity, including the wires that carry it and the structures that protect it along the way. They refer to the scope of their business as “electrical raceway products”.
And a good business it is.
Can’t say the same for the stock price, though.
Let’s start with some fundamentals.
So why is the stock so heavily bid?
The charts below will illustrate just how heavy the bid was, but if you’re looking for a quick answer, we’d suggest the collective breakdown of common sense that’s infiltrated every aspect of modern life and has taken stock market enthusiasm to levels that defy all rational thought.
There’s no doubt the recent surge in building stocks added to the hype, but when all is said and done, current prices are no longer justifiable, regardless of what’s happening with the homebuilders.
Have a look –
This is the daily, and as you can see –
Now have a look at the weekly –
Technically, the weekly chart also points to weakness on the horizon –
All told, it’s a negative prognosis.
And now, a quick look at the monthly –
We offer the above to illustrate just how overbought the stock has become on a monthly basis.
We love the set-up here, as it speaks to significant losses in the months to come.
At first to the low 50’s, and then perhaps more.
And we’re playing it as follows –
A Jew and His Money recommends you consider setting the ATKR October 15th 75 synthetic short* for a debit of $3.50 (8.50/12.00). Set a STOP buy on the shares at $80.
[*Sell the 75 CALL and buy the 75 PUT.]
Rationale: with a drop coming, and options priced as they are, our best – and least expensive – option is to set a synthetic short.
Given the initial debit, our breakeven will arrive at $71.50. And that’s great, as current price is $71.80, just 30 cents (0.4%) above that level.
We could see an initial pullback to the low 50’s, as mentioned above.
Maximum gain on the trade is unlimited.
Maximum loss – with proper STOPs in place – is $8.50 (initial debit plus the difference between the short CALL and our STOP buy order).
Should the STOP buy be triggered, a new STOP sell at the same $80 will have to be set to keep the trade square. If that order is filled, set a new STOP buy at $80. And so on. So long as the trade is open, an open STOP order at $80 should be in place.
With kind regards,
Hugh L. O’Haynew