Kroger Delivers a Sky High 2050%! And Money Doesn’t Grow on Trees… (DLTR, KR)

The Dollar Tree (NASDAQ:DLTR) is the source of our money-making alchemy today, and just in time, too!

It appears a great number of youthful George Washington’s are now grinding their axes, readying themselves to fell what they see as a stock that’s grown ridiculously quickly to heights unimaginable and is now fit only for the wood stove.

We’ll get there, friends, but first, we have one to close.

It’s our Kroger trade, whose details can be found HERE.

To sum, we’re holding the KR May 20^th 55 synthetic short, along with a $0.27 debit.

And…

Well, the synthetic short can now be closed* for a credit of $1.13 (2.44/1.31), and we say do it.

Execute, and your take is $0.82 NET on just four cents spent.

And that’s a very juicy 2050%.

Like pulling a rabbit out of a hat…

[*Buy back the 55 CALL and sell the 55 PUT.]

A hearty congratulations (again) to subscriber Arjun, who jumped out at the close on Friday and caught the day’s lows (and apparently also had several pairs on).

…Don’t we feel every bit the proud father.

How Do You Top That!?

As mentioned, we’ve got a new light rail to financial freedom leaving every Monday and Thursday morning.  And today’s ticket’ll buy you a potential 4900% win.

If she moves like we want.

Right…

So here are the fundamentals of Dollar Tree stock – and remember this is a retailer, albeit in an inflationary environment with lots of cheap Chinese merchandise.

• P/E is an expensive 28.14,
• Dividend Yield is NIL,
• Price to Book is too high at 4.73, and
• The latest Q/Q earnings FELL by 7.10%.

But that didn’t stop the buyers, who filled the parking lots over the last few months and talked (incessantly) about how inflation is going to make DLTR grow to the sky!

Un-hunh…

The daily chart, please –

Technically, the outlook is negative.

1. First, RSI is careening lower after tickling the overbought 80 line just two weeks ago (in green).  It’s now gone sub-waterline bearish, and
2. MACD looks just a few days from confirming (by going sub-waterline itself).  Once that happens, there’s no turning back.  Selling will commence like a Black Friday dollar-store panic.
3. Price itself is on the lower edge of a five month trend channel that we believe has no more than 48 hours left to hold (in red).
4. At that point, the break lower should bring price to the 140/145 range, where both a simple Fibonacci retracement calculation AND the rising 137 DMA reside (black arrow, purple dots).
5. Beyond that, the gap that needs filling through 115 is the next downside target (in blue), though it’s very unlikely we’ll reach that level before the trade closes.
6. Diminishing volumes also support the bearish claim (in black).

And if that weren’t enough…

The weekly chart is also damning.

Take a look –

1. After a 110% rise in just five months, a rising wedge formation is now complete, with all its bearish implications (in red).
2. Over that period, weekly RSI readings twice went to the overbought 80 level (in green), while
3. MACD now begins its second roll lower in the same time frame.  This time it looks more likely to be a fully-fleshed extended roll.
4. The long term weekly MAs show the company’s true growth trajectory, from which it has deviated appreciably in the last half year (in black).  That won’t be lost on the smart money, either.  It’s clearly time for Dollar Tree to get a pruning and grow back better through the summer.

And that’s how we’ve developed our trade.

Even a mild decline will give us the full bunny cake.

Check it out:

A Jew and His Money recommends you consider selling the DLTR May 20th 157.50/160 CALL spread* for a credit of $1.20 (8.40/7.20) and buying the DLTR May 20th 160/157.50 PUT spread** for $1.25 (4.70/3.45).  Total debit on the affair is $0.05.

[*Sell the 157.50 CALL and buy the 160 CALL.  **Buy the 160 PUT and sell the 157.50 PUT.]

Rationale:  The Al-mighty G-d of Israel, Who neither slumbers nor sleeps, is offering us a chance to cash in to the tune of 4900% on a five cent flip.

Get down on your knees and say ‘thank you’.

Moreover, max loss is a modest $2.55 (difference between the CALL spreads plus the initial debit).

Breakeven on the trade arrives a paltry 2.3% below the current stock price, at $158.70.

And the full Viennese Strudel is served at $157.45, a mere 3.0% below the current price.

And ain’t that just a wonder.

G-d bless all you good Jews and Noahides.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew