It's Time To Get Bearish: My Plan For A 56.9% Gain In 75 Days

Jared Levy's picture

Wednesday, April 4, 2018 - 12:00am

by Jared Levy

The bullishness that reigned supreme in 2017 and through late February is now gone. Market pundits, including myself, were riding the bullish wave, consciously ignoring high valuations, future growth challenges, geopolitical risks and more.


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I know that I personally capitulated and became a blind bull near the end of 2017 after several, very well researched and viable bearish trades didn't pan out. Since logic wasn't working, I had to join the "buy everything" crowd to stay profitable.

And that actually worked for a while. In November, my Profit Amplifier subscribers and I started almost exclusively buying call options. Things looked great until mid-February, when the market sold off 292 points (a 10.2% drop) in 13 days. In fact, nearly every call trade we opened and closed in that three-month period gave us a profit.

I discovered similar experiences after conversations with many colleagues. Most couldn't believe what was going on, but ended up jumping on board in late December, which is why you see the trajectory of the S&P 500 turn sharply higher in January, leaping nearly 7% in two months' time.

Over the past few weeks, all of those gains (and more) have been lost, and the S&P 500 is now doing a dangerous dance with its 200-day moving average -- something we haven't seen in many years...

The do-no-wrong market has quickly been replaced by something that's starting to feel a little more like the dot-com bust.

I'm not saying that some stocks can't go higher from here, but many will continue to get haircuts (and volatility is here to stay, at least for a while). There is an abundance of stocks that simply don't deserve to be trading where they are under normal circumstances.

And a market breakdown below the 200-day MA could easily send us another 10% lower. The current administration is creating less of a favorable investment environment with its knee-jerk policy shifts... unpredictable communication style... anti-trade policies... faster-than-expected rate hikes... and random targeting of specific companies, sectors and individuals.

In order to capitalize on this and to cut down on us getting whipsawed (entering late and getting stopped out early), I'm working on getting trades to my Profit Amplifier subscribers as quickly as possible, so they can get the best information in the shortest time.

A No-Brainer Bearish Trade
Crocs (NASDAQ: CROX) has been a contentious stock ever since I started following it just after its IPO back in early 2007. I remember a time when shares were near $75, then nearly $0.75 just a year later.

Not exactly a paragon of stability.

Shares of this odd-ball shoemaker languished for many years but have jumped 131% in the past 10 months -- and I simply cannot find anything to justify it.

If you're not familiar, Crocs manufactures those arguably fashionable, rubber-like clogs that were spawned from a boating shoe back in the early 2000s. Over the years, CROX has been trying to branch out and develop other, less specific footwear for men, women and children.

While I'm sure the shoes have a following, I believe that paying $40-$60 for a rubber clog is a little pricey. But this is bigger than my lack of affinity for expensive plastic shoes...

It's about a company trading at 57 times forward earnings.

It's about a company whose revenues have been basically flat year over year.

It's about a company that recently missed earnings estimates by a whopping $0.08 a share.

After that miss on Feb. 28, shares plummeted all the way to $12 before magically rallying to current levels above $16.

Now, even though the consensus analyst stock target is just $13.50, much of this recent rally (which looks like short covering to me) was due to one analyst at Piper Jaffrey upgrading CROX to a "buy" and setting a target of $15.

For context, he's only one of two analysts who recommend the stock as a buy. The other six analysts covering the stock list it as a "sell" or "hold." All told, the analysts' consensus target is nearly 16% lower than current prices. This tells me that even the most bullish pros think CROX is overpriced at $16.

I can further confirm this thesis because the trailing P/E of 181 is nearly the highest it's ever been, even slightly higher than it was when shares were priced at $75 back in late 2007.

Aside from all the financial and valuation analysis, CROX's sales trends are moving in the wrong direction. Stores were closed, and the company is expecting flat sales throughout 2018. And as the Denver Business Journal argued at the end of February, I agree that not even Drew Barrymore -- who became Crocs' spokeswoman in 2017 -- can turn things around.

This tremendous short squeeze can't have much more room to run... One million shares' worth of short interest has already gone away since January.

And thanks to the simple options strategy we use at Profit Amplifier, even a 12.5% retracement to $14 -- still $0.50 above analysts' targets -- would be enough to potentially net us a 57% gain by June.

How To Bet Against CROX
Currently, CROX is trading around $16. As I mentioned, I think it's realistic to expect the stock to fall by about 12.5%. This would still be slightly above the consensus analyst target, and it's entirely possible that the stock falls even further.

Investors wanting to make a bearish bet against the stock could probably do well by shorting the stock, but my Profit Amplifier subscribers and I have an even better strategy: We're going to "raid" this stock for a potential 56.9% gain.

How, you ask? Well, thanks to the power of our options strategy, we can amplify our potential gains from a short-term bearish trade, while simultaneously risking less capital upfront than investors who short CROX.

The goal here is for CROX to drop to $14 -- but the trade I shares with Profit Amplifier readers breaks even at $15.45, about 3.4% below recent prices. And if the stock reaches $14, about 12.5% below recent prices, we'll generate a 56.9% gain in 75 days, or 277% annualized.

There's a lot more to say about this strategy, so if you're curious about how it works, then I encourage you to check out this special report. It explains exactly how we do these simple little "raids" on stocks, making bullish and bearish bets, and magnify our profits much more than other investors. With the way things are, I can't think of a better way for investors to be more agile (and profitable) in today's market.

Jared Levy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.