בס״ד

Stimulate the Aviaries! (CAE)

Posted on October 7, 2019

We generally don’t like companies that are highly leveraged – unless the story is so compelling in some other regard that we can’t ignore it.

Debt is like a losing trade that never gets closed.  The longer it hangs out, the deeper the depression it causes, and the more havoc it plays with day-to-day decision making.

So when we looked at hypersonic, aerospace travel mavens CAE Inc. (NYSE:CAE), we weren’t so impressed.

Sure, she’s got a $6.5 billion market cap and a prominent position in the sector (she makes flight stimulators for both civil and military aircraft), but beyond that, the fundamentals are patently necropolitan.

The Earthling Must Die…

CAE has an earnings multiple of 27, a Price to Book ratio of 3.78, a dividend yield of 1.35%, and, as we mentioned at the outset, a debt/equity ratio of 1.15.  Price to FCF is a rather grand 54.6.

So she’s not the cheapest date at the prom.

But a look at her technicals proves she may be nothing more than a TORN DOWN HUSSY ready to sink into Abaddon pronto veloce!

Take a gander at her daily chart –

The technical picture is weak.

  • We’ve got a descending triangle here (in red), whose support was taken out late last week, indicating the sale is ON.
  • With both RSI and MACD below their respective waterlines (in green), there’s additional support for the bears, and we see a downside target of at least $21 over the near term (see more below).
  • Pulling back a bit, this is all part of a topping process that began with an overbought RSI read back in May (in red) and an all-time high in July, both of which are now being sanitized.

Now have a gaze at the weekly –

Here, we see some additional technical malfeasance.

  1. The weekly RSI overbought read in May is, in our books, a stock felony, plain and simple (in green). It screams ‘avoid’.
  2. Add to that the bearish engulfing pattern that followed the highs in early July (in blue), and
  3. The MACD rollover in August, and you’ve now confirmed that we’re in the grip of Marvin the Looney Tunes Martian (whose ties to the Deep State surveillance apparatus and unbounded cruelty are widely known).
  4. All of which mean: this cat’s a SELL.

The rising 137 week moving average provides first support for the stock.  It’s currently at $20, but if we had to eyeball it, we’d say the meeting with price will occur at $21.

Why the big to-do about the $21 level?

The $21 level also happens to be the exact Fibonacci retracement line for BOTH the nine month rise that began with the October 2018 bottom (above, in black) AND the multi-year low struck back in February 2016 (not seen here).

And it’s with all the foregoing in mind that we offering the following trade.

But before we do…

The Yom Kippur holiday falls this week, and we’d be remiss if we didn’t ask forgiveness for all those we’ve offended with bad jokes, soaking-wet irony and cheap puns.

Our sincerest apologies for those times we fell short.

Now trade it!

A Jew and His Money recommends you consider selling the CAE March 20th 25 CALL for $1.35 and buying three (3) March 20th 22.50 PUTs for $0.40 each.  Total credit on the trade is $0.15.

With kind regards,

Hugh L. O’Haynew

 

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