Without Prejudice! And a 4560% Return! (TAL, WPM/GLD)

Sorry to inform those living in China, those of Chinese descent, and those who love all that’s good about one of the world’s oldest cultures –

In the run-up to November’s election there’s a very good chance Chinese investments will take a beating.

With China as the go-to bad guy these days, it behooves both Democrats and Republicans to vent their spleen on sino-related businesses that make a buck off U.S. consumers.

Some of our closest friends…

The Chinese, of course, are as capable as any of becoming good Noahides (even good Jews!), so we want to emphasize unequivocally that we have absolutely no truck with those interested in aligning us with anti-Asian sentiment.

The subject at hand is investments – and we’d encourage all and every to stick to it.

And that brings us to our trade for the week.

But before we get there, we have one to close.

We launched it on June 24^th in a missive called Two Way Straddle in the Precious Metals.  There, we urged you to sell the GLD August 21^st 166 straddle for $9.95 and buy the WPM September 18^th 41/44 strangle for $10.00. Total debit on the affair was $0.05.

After that – on JULY 20^th – we closed the CALL side of the trade for $2.05.

And today we’re closing the PUTs.

The GLD 166 PUT goes for $0.44 and the WPM 44 for $0.77.  Buy back the first, sell off the second, and you walk home with $2.33 on a nickel laid out.

That’s a 4560% return in a month.

And that’s Musk money, friend.

The company at the core of our China sell-off theme does their work in the education field.

They’re called TAL Education Group ADR (NYSE:TAL), and these are their vital statistics –

No P/E (no earnings),

No Dividend,

Price to Book – 18x.

Always love these.  No earnings yet, but trending at 18x its liquidation value.

And because it’s domiciled and operates in China (with a single U.S. location) it’s now also a target.

That means in the current environment it wouldn’t be surprising to see the company’s access to U.S. capital markets shut down completely.

And that certainly wouldn’t help the share price.

But Covid!

Indeed, online learning and tutoring services have garnered significant interest during these days of chiropteran-induced hysteria.

But economic realities don’t always align with stock prices.

And it’s our firm contention that that’s precisely what has occurred with TAL.

Have a look first at the monthly chart –

• RSI just registered a MONTHLY overbought read (in green), and MACD is on an unsustainable climb toward a near-term rollover.
• Moreover, the moonshot of the last two months has come on increasingly muted volume (in blue).
• We would add that the weekly chart shows an overbought RSI read in January of this year.

Now take a peek at the daily –

We see a potential interim top in –

1. Last Thursday’s prominent bearish engulfing pattern (in blue), and the
2. Concurrent break below the rising trend channel (in red).
3. As this comes after three weeks of negative divergence from the RSI and MACD indicators (in green), we’re claiming that momentum has now run out, and the move from the late March lows is complete.

But considering that we now live in a pandemic la-la land, where folks will believe almost anything, we have to allow that price could go either way.

And that’s why we’re playing it as follows –

A Jew and His Money recommends you consider selling the TAL August 21^st 75 straddle for $8.50 and buying the TAL September 18^th 75 Straddle for $11.30.  Total debit on the trade is $2.80.

May the Holy Temple be rebuilt speedily, in our days!

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew