A market moving in reverse. A bearish chart. Fundamentals that won’t stand up to a solid tire-kicking.
These all set up Mobileye NV (MBLY) stock for a serious shorting.
For investors interested in shares of MBLY, the Israeli-based, auto-sensor chip specialist, appears positioned nicely in the much-hyped of late, driverless automobile market.
Mobileye has first-mover advantage and contracts with major car manufacturers such as General Motors (GM), Ford (F) and Honda (HMC), and is a named supplier in Volkswagen AG (VLKAY) “Future Automotive Supply Tracks” or FAST initiative. That said, MBLY is not a buy!
Now for the bad news. Mobileye sounds great on paper, but according to Citron Research, MBLY is the “Short of the Year for 2016.”
If you don’t recognize the name Citron and think it’s better to pooh-pooh the overtly bearish call in MBLY, I’d suggest not being too quick to dismiss this as just another misguided Wall Street analyst recommendation.
Citron is a short-selling investment shop which gained oodles of notoriety this past fall by calling out Valeant Pharmaceutical’s (VRX) questionable accounting practices. So, could MBLY be next to fall on hard times?
It should be noted Citron also got it right with past shorts on growth juggernauts 3D Systems (DDD), Ambarella (AMBA) and GoPro (GPRO) at a time when those names could do no wrong by Wall Street and legions of adoring investors. Now what do you think of MBLY stock as a short?
If you want more, the Citron call is backed up by a handful of bearish factors for MBLY first made public earlier this year.
Back in September Citron cited Mobileye’s lack of proprietary technology or patents, sky-high margins, rich valuation compared to its semiconductor chip peer group and heavy insider selling as reasons to short MBLY.
Now the updated “Short of the Year for 2016” for MBLY released earlier this week points to new evidence that Tesla (TSLA), despite its insistence otherwise, is likely to “discontinue Mobileye’s autopilot system and build its own in-house system.”
MBLY Weekly Chart
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In reviewing the weekly chart of MBLY, it’s obvious shares have lost favor with investors.
Over the past four months, MBLY stock has shifted gears and woefully underperformed the broader market, falling nearly 40%. For the year, Mobile Eye is off a very marginal 1%, but bears are in position to improve upon that decline in 2016.
Currently, MBLY stock appears to be breaking down from a descending triangle formation within its correction from the August highs. That’s bearish. A bit of channel support for MBLY stock is in the $35 to $36 area, but we don’t see that as holding up shares longer term.
With a price break below the key 62% retracement level, our view is that MBLY is headed between $28.75 to $31.12. This price target is based on a two-step pattern completion (leg AB=CD) and the prior August 2014 low.
MBLY Long Put Position
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The use of a long March $37 put for bearish exposure to MBLY allows several weeks before time decay becomes potentially a larger issue to guard against. In the interim, there’s ample time for MBLY stock to move lower and deliver profits to holders of this long put.
A money stop of 50% should help steer clear of any bearish hazards on the MBLY price chart should shares of Mobileye fail to cooperate technically. This adds a layer of protection on top of the guaranteed maximum risk tied to the premium paid.
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.
