Hey, Kids! Look What Happens When You Stick a Screwdriver Into a Plug Socket! (ATKR)

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.

• While P/E comes in at a very reasonable 17.7,
• Price to Book is a bloated 7.70, and
• There’s no dividend.
• Moreover, long-term Debt to Equity is a high side 1.75, and
• Earnings Per Share for the year to come are expected to drop by 14.09%.

So why is the stock so heavily bid?

Where Do You Even Start…?

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.

How’s that?

Raceway Science!

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 –

1. Price nearly quadrupled over the last five months (in purple),
2. Leaving gaps at 46 and 31 (in blue),
3. And a double top at 75 (in black).
4. RSI and MACD are now at, or approaching their midway waterlines (in green), and once crossed, would likely bring on significant selling.

Now have a look at the weekly –

Technically, the weekly chart also points to weakness on the horizon –

1. The full extent of parabolic price action comes clearer on the weekly paste-up (in red),
2. As does the distance travelled from the 27 and 137 week moving averages (in blue). The latter is now less than half the value of current price, and is holding directly at the aforementioned $31 price gap.  It wouldn’t surprise us if price were to retreat to that level.
3. The February volume spike looks to have concluded, and more recent, weaker turnover is likely indicative of a loss of interest among bulls (in black).
4. RSI (in green) is just descending from an extended WEEKLY overbought condition (the last of which heralded a 75% decline in the stock), and
5. Weekly MACD has begun its rollover (also in green). Taken together, these last two items suggest a top is NOW in process.

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.

• Price has sailed incorrigibly beyond her five year growth trajectory (in blue),
• While RSI (in green) is now a feather-flick from registering a monthly overbought read, and
• MACD, divergent in extremis, appears ready for a snap-back.

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 15^th 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

Follow @HughLOHaynew