Plastic Surgery: Watch SEE Stock Go Under the Knife (SEE)

Today we examine the bizarrely named Sealed Air Corporation (NYSE:SEE), makers of air-tight packaging for the food industry as well as bubble-wrap (and similar) to protect everything else you send that’s a tad fragile.

Gentle, gentle soldier.

The numbers for SEE are a mixed lot, for on the one hand –

• She posts a P/E of just 19.16 (cheap – in today’s market), and
• Offers a 1.10% Dividend Yield.
• On the other, she’s sporting a P/B of 88.41 and
• A horrific Debt to Equity ratio of 36.86, almost all of which is long term.
• And despite the need for increased shipping-packing during the phony Batflu economy, SEE posted a Q/Q earnings decline of 7.90% in her latest report.

Forget about plastic leaching out of packaging and into your food – and causing a host of metabolic disorders that lead to, among other things, obesity and fertility issues.

Forget about cardiovascular disease and possible connections to certain cancers.

Forget about birth defects and impaired immunity.

And pay no attention to the air pollution that comes from burning the stuff or the wildlife that’s threatened by it.

Just look at the chart –

Technically, we’re at a turning point.

1. An overbought condition at the beginning of May (in red, at bottom),
2. Led to bullish investors losing their mojo – as seen in the negative divergence of both RSI and MACD against price (in green).
3. All this occurred just as all the salient moving averages had unfurled and were trending higher – for the first time in six years (in red)!  In our experience, full unfurlments of this sort – in either direction – almost always portend a sudden retracement in price.  And that’s what we expect now.
4. Weak support at the short term MA at 56 is the next likely stop lower.  Après ça, there’s no netting until 48.
5. There are two gaps to fill, down to 51 and 45 (in blue).  We expect the move to the first to begin forthwith.

Now look at the weekly –

The weekly technicals show –

1. A very clear reverse head and shoulders pattern that has now run its course (in red).
2. After climbing 250% in fourteen months, the upside count is now complete (in black), and the ride appears to be over.

And that’s why we’re voting thus –

A Jew and His Money recommends you consider selling the SEE November 19^th 55/60 CALL spread** for a credit of $2.30 (6.10/3.80) and using the funds to purchase the SEE November 19^th 60 PUT for $5.40.  Total debit on the trade is $3.10.

[**Sell the 55 CALL and buy the 60 CALL.]

Rationale: We believe the coming decline in SEE shares is best played by selling CALL premium to buy a PUT.

The market has NOT been offering CALL spread premium for a couple of months now, and we feel it’s best to take advantage of it whenever possible.

To that end, the 55/60 spread is fairly rich, offering us a breakeven on the trade at SEE $58.95.  That represents a 4% decline from the current price of $58.35 and also aligns with the short term moving average (see daily chart).

As stated above, below that, there’s no strong support until roughly 48.

And we like that.

We’ll close the trade as price approaches that range, depending, of course, on how fast the move transpires and the overall structure of the market at that time.

Maximum gain on the trade is UNLIMITED.

Maximum loss is limited to $8.10 (difference between CALL strikes plus initial debit).

May you find favor in the eyes of the Holy One.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew