A bad or rotten apple of a market shouldn’t preclude shopping around on the weekly or monthly charts for technical value to match equally-compelling fundamentals. And Cirrus Logic (CRUS) appears to be one such attractive proposition for longer-term bulls using a collar in CRUS stock.
This market strategist discussed CRUS stock back on Aug. 9 while making the case for buying the Apple (AAPL) supplier based on its upbeat earnings report and building its business prospects away from its bread-and-butter customer to better diversify.
Not much has changed since then for CRUS stock … well, other than Mr. Market getting very ugly in a hurry and the world seemingly collapsing under the weight of bulls used to zero-gravity conditions for prolonged periods of time.
Nonetheless, after catching our breath and reviewing more than a few charts, CRUS stock remains a favorite and maybe more so. Let me explain.
CRUS Stock Weekly Chart
Despite the market’s current mayhem, CRUS stock’s unsurprising collapse below its 200-day simple moving average and the price drop of around 10% lower suggests a low might be in place due to a handful of supports now in play and seen on the provided weekly chart of Cirrus Logic.
First, a correction of 35% in CRUS stock is a good thing overall — don’t let whining by perma-bulls in the background fool you. While the depth is slightly more than the classic “up to 30%” used by many growth traders, in our view the decline is very approachable.
Pragmatically, the technical low in CRUS stock is not so weak as to think investors are tired of Cirrus Logic or that further declines are in store.
Secondly, the current correction in Cirrus Logic is backed up by its test of prior highs set in October 2013 and July 2014 in CRUS stock. That’s good to see. The price action in CRUS stock lines up with the 200-week simple moving average acting as support, which is just more good news for bullish traders in our opinion.
Additionally, a fairly aggressive price position in CRUS stock relative to its weekly Bollinger Band and potential bullishly divergent stochastics signal also has our attention.
Lastly, CRUS stock is demonstrating good relative price strength compared to market ETFs like the NASDAQ 100 (QQQ) which has tested its October low and the Russell 2000 (IWM) which is much closer to that milestone than not. Booyah!
“Ripe for the Picking” CRUS Stock Collar
We’ve reviewed the CRUS options board for ideas in keeping with where CRUS stock has planted its technical seeds for future growth, and one position ripe for picking is the September $29/$25 collar for $27.03 or better.
The price reflects a slightly worse-than-fair value, i.e. greater-than-mid-market fill, but one that’s realistic given CRUS stock option’s liquidity and still attractive from a risk-to-reward standpoint. At the end of the day, this collar ensures stock risk is contained to $25 for no cost as the protection offered by the put, which is steep in dollar terms currently, is financed by the $29 call which is equally out-of-the-money.
I like this four-point collar design as it avoids further potential drawdowns below Monday’s lows in case market conditions get really out of control, or in case CRUS stock attempts to revisit its own deeper and late-2014 key weekly chart lows near $17 per share from December.
Additionally, for longer-term traders, were a much stronger price rout in CRUS stock to occur, the limited and potentially much smaller risk of the collar means any “Sell, Sell, Sell!!” panic situations might be reviewed for “Buy, Buy, Buy!” opportunities by rolling and even increasing the initial stake with much greater risk control and clear-mindedness than otherwise.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT
