Tempur Sealy Infested With Bedbugs! Short-Sellers Itching For Blood! (TPX)

A very happy and meaningful Simchat Torah holiday to all you good Jews and Noahides.

We’ll be out of the office from noon today through Tuesday night (Jerusalem Standard Time).

Until then, you’re on your own.

Best of British luck!

We’re cutting straight to the chase today – because, face it – we need a nap!

The Sukkot holiday reminds you what a good schloof is all about.

Anyway…

Today, it’s all about Tempur Sealy International (NYSE:TPX), manufacturers of all things sleep-related (save Benadryl).

It’s our conviction that TPX is now overbought and ready to tip.

And the fundamentals concur.

Consider –

• P/E is 19.31,
• Yield is a measly 0.57%,
• Price to Book is an extreme 24.20,
• Debt/Equity is equally so at 3.76 (with another $800 million in notes now on offer – unsecured, of course, because it’s intended to…well, you know… pay off already existing debt), and
• Insiders dumped 17% of their holdings over the last six months, to the tune of $89 million.

The alleged reason for the current bedding brouhaha is that people are moving and buying new houses – or so the housing statistics tell us.

But we’ve a feeling there’s no real sustainable housing boom, and that everything related to the building, buying and furnishing spree is more hype than reality.

The housing market’s record-setting pace of the first half of 2021 is now floundering.

And a crash is more likely than a rebound.

Last quarter, Sealy’s earnings were strong, admittedly, but this is not a trend we see continuing.

Here’s the TPX daily chart year-to-date –

Technically, there is nothing here that screams SELL.  Rather, we see a number of smaller puzzle pieces that, taken together, indicate a top is now likely forming.

1. First, TPX has jumped better than 800% since the Batflu struck last March, logging presposterously suspicious earnings on the way as everyone reportedly ‘redecorated’.
2. A full 36% of those gains came in the last two months, after a surprisingly strong earnings report gapped the stock higher (in blue), and
3. Confined the rise to a tight trend channel (in red), the top of which was again struck last Thursday.
4. It has been 16 months since price touched her 137 DMA (in purple), and that’s egregious, in our books.  This is something that a healthy stock does two to three times a year in a bull market.  The lack of contact for such an extended span is an indication that the bulls’ linens are wearing thin.
5. Neither RSI nor MACD (in green) are offering unequivocal signals, but we’re certainly close to an RSI 80 reading, and MACD’s advance is indicative of waning momentum, with each bump higher decreasing in duration.  It’s our view that both indicators will turn lower by week’s end – and with a greater rip than that of the broader market.   

In short, the bed-posts are rickety, friends, and the trade on offer is structured for maximum gains when the mattress eventually slips.

Like this –

A Jew and His Money recommends you consider selling the TPX December 17^th 47.50/50.00 CALL spread* for a credit of $1.10 (4.40/3.30), and buying two (2) TPX December 17^th 42.50/40.00 PUT spreads** for $0.55 each (1.20/0.65).  Net Zero Premium is the result.

[*Sell the 47.50 CALL and buy the 50.00 CALL.  **Buy the 42.50 PUT and sell the 40.00 PUT.]

Rationale: We pay nothing for the trade and get a lopsided risk/reward profile in our favor.

To wit –

Maximum gain is $5.00

Maximum loss is $2.50.

Patience will bear us fruit.

Along with trust in The Holy One of Israel.

Blessed be His holy name forever and ever.

And may the enemies of G-d endure bizarre deaths.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew