$PSMT = “PriceDumb”


$PSMT Pricesmart is the company that runs COSTCO, SAMS Club and BJ's-type stores in Latin America and the Caribbean. The most-recent earnings report from the company was also greeted with an orgy of buying. The stock itself is up over 20% since that report, at least 50% the last 2 months and it also posted a strong trading day today. Like the overall market, $PSMT seems impervious to any downside. Take a glance at this chart from 2004 when $PSMT was trading for $4 a share.


Its been a remarkable rally, one that could continue to the upside. However, I think we may have seen the top for now, and here's why:

Basically, the latest earnings report was nothing extraordinary. On the surface, $PSMT beat EPS by $.03 but missed on revenue by over $1 million. The market cheered these results, sending the owner of 32 wholesale clubs to new all-time highs. Central America, the Caribbean, Latin America; apparently, this is the place to be as the company boasted 10-plus-percent sales growth over the last year.

But does the above warrant the recent spastic rise in $PSMT? I know the central banks are forcing investors into risky assets and $PSMT is performing well, but does it deserve the price the market has brought it to over the last few trading sessions?

In truth, I believe the stock is poised for a pullback. I also think the $115 November puts will act as a great trade when this pullback occurs. The last trade for these options was $.60, and I'm in these options at $1.20 and am not the least bit worried about my position. In fact, I think the run-up in $PSMT will come to a halt and that the stock will drop, consolidate and perhaps even resume its upside.

In short, I like the risk/reward on the short term puts. The market isn't pricing in a pullback and the stock will pull back to $110-$112. At that point, I'll sell for a profit and move on. Nothing goes up forever, and this is a stock no one thinks will fall. And that's exactly why I like it for a pullback.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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