Watch REVOLVE Dissolve. Again. (RVLV)

We’ve already traded Revolve Group for a 750% return once this year.

Can we do it again?

Aw, c’mon guys… Of course we can!

Revolve markets clothing to young women, and its stock has gone teen batty of late.

A massive price surge late last month is attributable to its inclusion in the Russell 3000 index, after which all mutual funds and ETFs that track Russell indexes had to buy the stock.

Since then, however, price action has cooled, and we’ve a hunch there’s little left of the teeny bop buying that brought us this far.

Consider the fundamentals –

• P/E is 66.65,
• Annual Yield is an adolescent DIDDLY,
• Price to Book is a juvenile 21.80 (!), and
• Get this – insiders have pawned off 96.52% of their holdings in the last six months!

Got that?

They’ve virtually nothing left to sell.

The sum total of their haul was $540 million.

No typo there.

FIVE HUNDRED FORTY MILLION BUCKS CASHED OUT.

Yeah, we got it.

Two charts to look at now, the daily and weekly, both of which reveal a stock that’s on the verge of a purge.

Here’s six months’ worth of daily –

Technically, the picture’s as follows –

1. A bearish engulfing pattern at the top of the move (in blue)…
2. Triggered a sustained loss of price-altitude over the last three weeks.  We now have lower highs and lower lows as price approaches the lower edge of…
3. A rising wedge formation (in red) – a pattern that’s always bearish.  Once price loses the lower trendline, a fall to next support is almost certain.
4. In our case, the lower edge of that formation is 65.  Below that, next support arrives at 50, where the rising 137 day MA should act as a net.
5. Volume (in black) has declined drastically in the last five sessions, a period in which RVLV made significant gains, but may just as easily give them up, considering the meager commitment of bulls to hoist her over that period.

Now look at the weekly –

The weekly technicals are highlighted by –

1. An extended overbought RSI indication (circled, in red) in the first quarter of the year, which is never a positive development –
2. That led to strong divergence against price (green arrow), which is a sign that buying momentum is drying up.
3. At the same time, intra-week volatility went through the roof (in blue), with price moves regularly surpassing 20% a week at the extremes.  This, too, is a sign that commitment is dubious, with bulls and bears relentlessly trading blows in an effort to establish dominance.
4. After an 875% rise, it now appears the stock is headed toward more torpid near-term action.  Fibonacci retracement lines suggest a decline to either 48.25 or 32.50 (in purple).

And it’s for all the foregoing that we offer the following –

A Jew and His Money recommends you consider selling the RVLV September 17^th 75/80 CALL spread* for a credit of $1.10 (5.00/3.90) and buying the RVLV September 17^th 65/55 PUT spread** for a debit of $3.65 (5.60/1.95).  Total debit on the affair is $2.55.

[*Sell the 75 CALL and buy the 80 CALL. **Buy the 65 PUT and sell the 55 PUT.]

Rationale: with spreads reasonably tight, we like the structure here.

The short CALL spread defrays the cost of the PUT spread nicely, offering us the opportunity to gross $10.00 on $2.55 spent ($7.45 net).

Maximum loss is $7.55 (difference between the CALL strikes plus initial debit), should RVLV go on to set new highs and close above 80 by expiry.

Breakeven on the trade is $62.45.

A fall to the RVLV 50 level, where support from the 137 DMA and the upper Fib reside, is not at all out of the question.

May Hashem show us His might, His glory, His radiance and His tzedek – and soon!

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew