We’ve opened a new bearish trade on Crocs (CROX). CROX has been in a slow decline for nearly four years now. If you look at a long-term chart, you will see that the stock enjoyed a meteoric rise until late 2011 when it came crashing down and started its long-term, down-trending channel. The stock is now hitting the down-trending resistance level that forms the top of the channel, and we anticipate it is going to start moving lower.
CROX surged higher in May after a positive analyst rating from Piper Jaffray. Apparently, CROX management was able to convince the analysts that it was going to change its focus and improve its results after reporting its European revenues dropped by 6.5%, its American revenues dropped by 12.8% and its Asia Pacific revenues dropped by 26.8% during the first quarter.
Frankly, we don’t buy it. CROX is not going to benefit from the same sales increases companies like Nike (NKE) are enjoying. The CROX product line is too limited and unfashionable among the younger crowd.
We expect CROX to drop below $14 when it reports its most recent quarterly earnings on July 27, after the market closes.
Buy to open the CROX August 14 Puts for a maximum price of $0.55.
We don’t appear to be alone in our analysis. The open interest for the CROX August 14 puts is sky high compared to the rest of the August options.
We’ve also closed our bearish trade on SolarCity (SCTY). SCTY’s competitor, Vivint Solar, received a buyout bid that was well above market value. The halo effect has forced SCTY up significantly this week. We are concerned that investors will start to speculate about a SCTY buyout (which could easily be at a higher valuation) and send the stock even higher. We recommend closing the position now so we can reallocate that capital.
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