When the Towers Tumble Again… (ACM)

AECOM (NYSE:ACM) builds.

Their portfolio of projects spans the globe and includes skyscrapers, stadia, hospitals, freeways, and hotels, just to name a few.

They also rebuilt the World Trade Center.

And today they’re offering us a chance at a 2400% cash-grab that costs next to nothing to initiate.

Elevator Down

When the construction’s finished, however, and the  final touches are put on the penthouse, it’s time to catch the lift to the ground floor, wash up and head out for a nosh.

And that’s precisely where ACM stock now stands.

After a wonderful rise – that bested the Dow by some 12-13% over the past two months – AECOM has now been fattened to the full, and, in our view, is ready for the slaughter.

Consider a few fundamentals –

• AECOM’s P/E is 29.90, and her Forward P/E is 20.07.
• Dividend Yield is a nominal 0.78%.
• P/B is a hefty 10.45.
• Debt to Equity is high at 0.90.
• Sales over the last five years have DECLINED by 5.20% annually, while
• Q/Q sales for the latest reporting period have also fallen by 4.90%.

All told, this is not a cheap issue, by any stretch.

Again, we have a case of retail buying and institutional short covering that together led to a manic, unthinking spasm of acquisition.

ACM reported earnings on August 9^th, and the results were mixed.

Revenues were short of Wall Street’s expectations by roughly 5%, while Earnings beat by three cents (3.6%).

More important, however, was the overall trend lower for analyst estimates in the weeks leading up to the announcement – a trend that has since continued, with dire consequences, we say, for the stock over the near term.

Take a look now at the daily chart –

Technically, we see…

1. An overbought RSI condition registered last week (in green),
2. While MACD commences its rollover.  Together, these indicators are signaling a high-tide moment.  From here, we recede.
3. Volume figures confirm the hypothesis.  The post-earnings rise was ethereal, with bulls avoiding any genuine commitment to the stock.  Volumes fell to almost half the daily average (in black).  And we know that volume precedes price.
4. ACM had trouble ascending above the 80 mark (in blue) in January (not shown), March and April of this year.  It appears that line might marks overwhelming resistance.
5. It also appears that traders are aware of that fact, and have begun an early liquidation (in red).
6. Last Thursday’s doji could also be indicative of a top.
7. Finally, a simple Fibonacci calculation sees the stock declining to either 71 or 67, precisely in alignment with the rising 137 and 411 DMAs.

But we need only a fraction of that move to pull out our 2400%.

Like this –

A Jew and His Money recommends you consider selling the ACM November 18^th 75/80 CALL spread* for $1.80 (5.30/3.50) and buying the ACM November 18^th 77.50/75 PUT spread** for $1.90 (5.20/3.30).  Total debit on the trade is $0.10.

[*Sell the 75 CALL and buy the 80 CALL.  **Buy the 77.50 PUT and sell the 75 PUT.]

Rationale: the trade requires just a dime to set, and delivers a potent $2.40 NET if we’re right (that’s 2400%).

Max loss is $5.10 (difference between the CALL strikes plus the original debit).

Breakeven is $76.15, just $0.34 (or four tenths of one percent) below the current price.

We’re building back better with this one, friends.

May it ever be His will that we succeed in all that binds us to Him.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew