Is Your Car Falling Apart? (CPRT)

This week’s effort sports a vehicular underlying, Copart Inc. (NASDAQ:CPRT), online auctioneer of cars and the like – that also sports a NASCAR set of valuations.

Price/Earnings is a funny-car 40.38,

Dividend yield is pit-stop ZERO,

Price to Book is 10.08…

And if that wasn’t enough, insiders guiding the pace car have sold 46.7% of their holdings over the last six months, for a grand total, dizzy sum of $112 million!

Since the Batflu hysteria seized the planet back in March, insider sales have amounted to a speedway record $200 million.

So, too, in the technical realm do things appear racy.

Here’s the daily chart –

1. After an RSI overbought read in August/September (red circle, at bottom), upside momentum waned – as seen in the ensuing negative divergence (in green).
2. RSI is now sub-waterline bearish and MACD should confirm by week’s end.
3. Moreover, a bearish engulfing pattern just two weeks ago (red circle, at top) appears to have marked the intermediate term top,
4. Subsequent price action – a move below the short term moving average (in blue) – is now confirming that hypothesis.

Have a look now at the weekly chart, from which the timing of the trade garners further support –

• To begin, the Fibonacci retracement off the March bottom (in blue) carried EXACTLY 1.618x the prior decline.  It doesn’t get any more precise than that.  All of which lends support to the topout at $130.96 being THE intermediate top.
• Price is now sitting directly upon her rising eight month trendline (in red).  Any break below that level would trigger massive technical selling.
• The broader technical formation now in play is a rising wedge, always bearish – which led to a near 50% selloff last time it occurred (through February).
• Both RSI and MACD are weakening (in green), with a complete MACD rollover possible by week’s end.

And a CPRT trade on the short side.

Like this –

A Jew and His Money recommends you buy the January 15^th CPRT synthetic PUT by selling the 105 CALL for $11.50 and buying the 105 PUT for $1.50.  To protect against upside flight, buy the 120 CALL for $2.80.  Total credit on the trade is $7.20.

Rationale: CPRT looks poised for a fall, and we’ve structured a trade that allows for full downside exposure, while capping our losses if we’re wrong.

$112.20 is our breakeven (2.6% below the current price of $115.21).

Maximum gain on the trade is unlimited.

Maximum loss – if CPRT closes above 120 – is $7.80.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew