A Short Opportunity in Jack in the Box (JBX)?

The following is exclusive analysis from The Correct Call, provided to my readers here at SelfInvestors.com beginning today and provided on a weekly basis.  Hope you enjoy these weekly trade ideas.. your feedback is appreciated.


With the Stock Market sinking on higher Oil prices, The Correct Call’s models are dangerously close to moving into sell territory. With that in mind, in our weekly review of ETF charts, we were on the lookout for short selling opportunities.

One such chart, PowerShares Food and Beverages (PBJ) looks like it’s starting to run a fever.

As you can see in the chart, PBJ’s price has moved below the 50 day moving average and the Short Term MACD has crossed below the longer term line- usually not good.

The Correct Call screened the holdings of PBJ in search of companies we can short with deteriorating fundamentals and a poor technical picture. One popped out to us.

Jack in the Box’s (JBX) short-term prospects favor the stock price moving lower.

    – In the company’s latest earnings call, management anticipates a 2% decrease in same store sales for the rest of this quarter JBX’s restaurants in California, Las Vegas and Phoenix have been impacted by the souring economy in those hard hit states.

    – Higher food and commodity costs are reducing JBX’s profit margins at a time when Jack might be forced to lower its prices to keep up with the very aggressive value menu pricing campaigns of their fast food peers.

    – Management recently offered inline earnings guidance for the remainder of 2008, but admitted much of their outlook is backend loaded. Any miscue in execution could lead to an earnings disappointment and a much lower stock price.

Analysis of JBX’s chart reveals a negative MACD crossover and double bottom around $23.25. If Jack’s price were to violate and close below that support line, the next stop should be in the $19-20 range.

Investors worried about potential big losses from shorting a stock, should consider buying put options. With put options, your risk is limited to the dollars invested. For JBX, aggressive investors should consider the September 25 Put Options. If we have made The Correct Call and Jack in the Box trades at $20 per share by August 1st, the September 25 Puts value would be worth around $5. A 67% increase from yesterday’s close of $3 per contract.

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