Honeywell’s Lid Adds to the Odds That the Bid’s Hit The Skids (HON,KSS)

There comes a time in every profitable business’s life when it has to admit that although the operation is smooth-running and turning a gangbuster profit, the stock valuation is a wee bit stretched.

So it is with Honeywell (NYSE:HON), makers of everything aerospace, robotic and automated.

It’s a fairly straightforward story: the stock shot higher on increased sales and lower taxes, feels optimistic about its second half, and has outperformed the Dow Industrials by a wide margin.

Zippity–Do–Dah !

But a look at the charts shows there’s been a wee bit too much heat, and that’s why we’re zeroing in on her today.

We’re going to take a look at both the daily and weekly charts, because, combined, they offer us a blue-sky picture of impending annihilation.

This is the daily –

The technical low-down’s like this –

1. RSI is sub-waterline and MACD will shortly confirm (in black),
2. Momentum has been waning since late April, as evidenced in the negative divergence (in green),
3. And perhaps most ominously, three fan-lines higher have run their course (in red), a technical signal that a top is in and a change in intermediate trend is now at hand.

Whether the change lasts a few weeks or a few months or longer is not known.  The downside here is a moving target that we’ll be assessing according to the speed of the move and the volume that accompanies it.

But it don’t look good.

Have a peek now at the weekly chart for Honeybunch –

Last week’s action brought a bearish engulfing pattern (seen in the black blow-up), a devilishly unfriendly indication – particularly when it appears on a weekly chart.

It occurred on better than average volume (in blue), while a MACD cross lower only added to the odds that we’re in for a jitterbug groove of selling.

Why Kiss The Mirror?

But we’re not about to make a straight up short call on Honeywell shares, because that’s simply too expensive a proposition.

Instead, we’re going to match her with one of the most beaten up stocks in the most shorted sector of the entire stock universe – the retailers.

The catfish in a halter-top today is Kohl’s (NYSE:KSS), a major department store whose stock has been draggin’ its arse along the river bottom for better than six weeks now and is due for a quick pop higher.

Here’s the chart –

The technicals here show a stock just waiting to fly.

Consider –

• RSI was deeply oversold in late May and June (in green) and has now surfaced (in black).
• MACD is still submerged but should surface by week’s end, confirming the short term change in trend higher.
• The gap lower (circled, in red) leaves room for a jump to the $63 range – a development made all the more likely due to a massive short position in KSS shares.

Have a look here –

Kohl’s is among the worst stocks in the worst sector of the market.

Can anyone say ‘short squeeze’?

We’re facing these two corporate behemoths against one anther in what amounts to a Godzilla vs Rodan cage rematch, and we’ll bet Auntie Mabel’s blue mantelpiece vase that we’re gonna win.

A Jew and His Money recommends you consider buying the KSS January 15^th (2021) 52.50 CALL for $6.90 and selling the HON January 15^th (2021) 195 CALL for $6.85.  Total debit on the trade is $0.05.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew