Tag Archives: short sell ideas

Jim Cramer’s Christmas Gift To Short-Sellers

Wall Street’s best contrarian indicator has spoken. Jim Cramer issued a strong buy on the Dow last Wednesday. He references the “generals” that are “leading the charge” higher in the stock market.   He sees no end in sight to current move in market leaders. Those will prove, once again for Cramer, famous last words.   It will be more like Custard making his last stand.

Perhaps the most amusing section of his maniacal diatribe was his assertion that Goldman Sachs (GS) and JP Morgan (JPM) are “cheap” because of Trump. A colleague and I were, serendipitously discussing GS as a great short idea last week. Cramer is a bona fide lunatic who must relish the thought of leading the retail stock lemmings to slaughter. The financials have gone parabolic since the election and now the hedge funds who whisper sweet nothings into Cramer’s ear need an exit.   Please don’t give up your chair to the sound of CNBC’s Pied Piper.

The puts on JPM and GS are loaded with premium. I don’t want to recommend any specific put ideas.   If you have an interest in shorting shares, GS and JPM are among the best shorts in the Dow right now.

That was an excerpt from the latest issue of the Short Seller’s Journal.   Shorts are working again.   Four of the five short ideas in last week’s SSJ were down for the week (one was unchanged) – one retail idea was down 13.6% and the puts recommended were up 400%.  In fact, most of the short ideas since early August have been working, some better than others, with one them down nearly 40% since early August.

Beneath the facade of the Dow and the SPX, many stocks and sectors are down for year. For instance, the DJ Home Construction index is down 11.1% from its 52-week high early this year.  It’s 52% below its all-time high in July 2005.  The current SSJ presents an home construction-related stock that is technically and fundamentally set-up to fall off a cliff.  I also presented my for favorite homebuilder shorts along with put option ideas.

The SSJ is a weekly subscription-based newsletter.  It’s billed on monthly recurring basis with no required minimum subscription period.  Each issue is delivered to your email in-box and has at least 2 or 3 short ideas plus put option ideas.   New subscribers will receive a handful of the most recent issues plus a complimentary copy of the Mining Stock Journal.  SSJ subscribers can subscribe to the MSJ for half-price.  You can get more information and a subscription here:  Short Seller’s Journal subscription link.

Valeant (VRX): The Short Seller’s ATM Machine

Valeant stock bounced today on the news that it had completed an internal review of its accounting issues with respect to revenue recognition and did not find any additional problems (Wall St Journal).   Famous last words there…VRX announced that it intends to file its restated financials in its 10-K by the April 29 “drop dead” date to avoid triggering a default under its bank covenants.

This Company smells more like an “Enron-esque” situation every day.  The revenue recognition issues connected to Philidor RX Services is just one of many issues.   VRX is a literal “roach motel” of bad business decisions, unethical business practices and, most likely, embedded fraud.

The stock popped up  21% in pre-market when the news report hit the tape.  As you can Untitledsee from the graph to the right (click to enlarge), it’s been selling off since the initial spike.  It’s likely that a few panic’d short sellers rushed to cover.  However, I would bet most of the move up in the stock was triggered by a bevy of retail daytrader stock jockeys who thought it would be a good idea to chase momentum.

While the Company may avoid a technical default under its bank covenants, this does nothing to fix VRX’s deep-seated problems.  It has $30 billion debt that was amassed from overpaying for its several acquisitions over the past few years.  It has a self-assessed book value of $6.4 billion, or $18/share.  BUT, after stripping away goodwill/intangibles, its book value is negative $32.6 billion.  Too be sure, most of that goodwill is attributable the amount by which VRX overpaid for acquisitions, some of which it is already looking to unload.  

One last point about the news that juiced the stock today.  The Company’s declaration that its financials are now valid is based on a review of the matter conducted by a committee that was composed of VRX’s board of directors.  In no way can the case be made that this review was in any respect independent or “arm’s length.”  This is another trait of a Company that is on the ropes:  self-declared exoneration.

Without a doubt, the path of VRX’s stock to much lower stock prices will be littered with news-driven price-spikes like today.   This is why VRX stock is a short-seller’s ATM.  Every spike can be shorted for short-term profits.  Make sure to hold on to some amount of a “core” position in order to profit from the next eventual new-driven waterfall.  This is how similar stocks before VRX – like Enron, Bear Stearns, Countrywide FInancial,  etc – traded until they finally dropped below $10.

I have no doubt that beneath the mess, VRX has a core business that is profitable.  But it is highly likely that core value of VRX’s enterprise is significantly lower that is implied by the current market cap.  Currently VRX’s June $17.50-strike put options trade at $2 and have an implied volatility of 1.477. This is a staggeringly high implied volatility and it reflects an imputed 35% probability that the stock price will be below $17.50 by the June expiration of the put contract.

The only problem I have with the idea of shorting VRX beyond price-spike daytrades is that the idea has not received the full “Cramer endorsement,” meaning Cramer has not issued a table-pounding “buy, the market is stupid” recommendation.   Other than that VRX is a daytrader’s dream ATM.


Insanity Engulfs The Stock Market

I have no idea who is throwing cash into this highly overvalued stock market to push it higher right now. Any registered financial advisors or pension managers who are buying into this stock market right now are in serious breach of their legal fiduciary duty.  While there’s likely a modicum of retail daytraders and momentum-chasing “hedge” funds chasing the upward velocity, I have a an educated hunch that the Fed and the Treasury’s Working Group on Financial Markets – headquartered in the same building as the NY Fed – are behind this insane thrust higher in the S&P 500 and the Dow.

But as Shakespeare once said (in Macbeth) “nothing is but what is not.”  Beneath the facade of the S&P 500 index spike up over the past 2 weeks, smart money appears to be unloading long positions before this “Titanic” hits the iceberg (click to enlarge):


With good reason, too. If GAAP earnings were calculated the way they were calculated 20 or even 10 years ago, the p/e ratio for the S&P 500 would be at its highest in history. Furthermore, “smart” investors would not be chasing stocks higher while earnings and revenues are declining, as they have been for several quarters.

The on-balance volume and positive volume indicator signals in the graph above show an extreme divergence from the direction of stock market.  This indicates that – away from the key stocks used to push the S&P 500 and Dow higher – big money is unloading stocks while the SPX/Dow appear to show strength.  It’s brings to mind the “Rome burns while Nero fiddles” metaphor.

In the graph above, you can see that the S&P 500 appears to be carving out a pattern similar to the path it took from last August through early November, before it dropped off a 12.5% cliff.  No one knows if this same pattern will repeat, but there’s always the chance that the Fed is trying to push the S&P 500 back up to its 200 dma (red line).  We’ll know if this gets accomplished soon enough.

Meanwhile, it’s still possible to make a lot money shorting the stock market as long as you are “nimble.”  On Monday mid-day, I emailed my subscribers with what I call a “quick hit” trade set-up that had developed in Big Five Sporting Goods ((BGFV) – click to enlarge:


The suggested trade was to buy puts or short BGFV before the close on Tuesday and cover it or sell the puts right after the open on Wednesday (today).  I had some additional analysis to support the trade idea.  BGFV actually “beat” its earnings number but it required some hard-core GAAP engineering to accomplish this.  Revenues were in-line but the stock was hit for over 18% at the open today.

Several subscribers emailed me today with their success on this trade:  “Good call on BGFV. Scalped it twice…Thanks for this trade, 117% return in less than 24hrs, not too shabby, lol…Got small position in the $12.50 puts just before the close. Sold this a.m. as instructed for 112%…We did this trade-our first with your service–and got a little better than a triple!!

You can subscribe to the Short Seller’s Journal here:   LINK  or by clicking on the image to the right.  It’s been a difficult stretch for shorting this market but most of my emphasis and NewSSJ Graphicideas are focused on longer term trade ideas (12-18 month). I always include ideas for using options with specific examples.

The intra-week email “alert” was not originally part of the service but I tried it out several weeks ago and had a great response.  I only send them out when I come across an idea that merits doing so.  Finally, SSJ subscribers will be able to subscribe to the coming-soon Mining Stock Journal (hopefully Friday) for half-price.

The Latest Weekly Short Seller’s Journal Is Now Available

The stock market (S&P 500) jumped 97 points the first three days of last week.  That’s an average of 32 points per day for those three days.  The economic news continues to show quickly deteriorating U.S./global economic conditions.  U.S. Treasury debt is now over $19 trillion.  There is a near-100% probability that the U.S. Treasury will hit the new $20 trillion debt ceiling limit before the March 2017 borrowing authority extension date arrives.

I have no doubt that the Fed will re-ante its money printing program – aka  “QE” – before Labor Day.

My latest issue of the Short Seller’s Journal features a highly overvalued construction industry stock plus a tech/media stock with big operating losses. Click HERE or on the image below to subscribe.


Hey Dave, loving your SSJ service. In fact it is just what I was looking for as the market rolls over. I expect to have my best year in the market ever, assuming the powers that be don’t step in to halt trading just when things are heating up, or some other such manipulation.

I think the journal provides just the right amount of depth, and your writing style makes me chuckle. Keep the great tips coming.   – Ken

Amazon.com Is “Prime” For Shorting

I have only just recently found your work through Craig Hemke of TF Metals, but I have been reading your reports on Amazon and decided to take the plunge and buy your full report – wow!  It is a great report, thank you.

Now I have found your work, I will keep checking your website to keep up to date with your reports.    – “Alex from the UK,”  who purchased my Amazon dot Con report

Amazon.com announced Wednesday that is was finally discontinuing its Fire Phone, which failed miserably.  Only the insider beancounters and Jeff Bezos know how much AMZN wasted on this product.

Consistent with its business plan, which spends enormous amounts of money in order to lose money every quarter (using true GAAP accounting, not Bezos “make it up” accounting rules) and to continue burning through the cash it raises from the bond and equity markets,   AMZN announced that it will roll out a $50 tablet with a 6-inch screen in time for the holiday season.

AMZN already has a table product on the market that, like the Fire Phone before it, is failing to generate consumer interest.  It’s been estimated that AMZN’s share of the tablet market is less than 1%.   While I expect the new 6-inch screen tablet to fall flat on its face, I would love to see a breakout of the amount of money AMZN spent developing the product.

But let’s look at a couple charts of AMZN’s stock – click graphs to enlarge:

AMZN1As I pointed out in previous post, AMZN can’t seem to push through the $530 price level (yellow line in the upper right).  It is likely that big hedge fund with a large position in AMZN is distributing the stock to hungry retail momentum traders. At some point the hedge funds with overweightings in AMZN will turn into dumpers rather than distributors.  AMZN reports its latest quarter on October 22.   “Street” consensus is for a loss of $0.12.  Last year when AMZN reported its Q3, the stock gave short-sellers a nice, quick ride lower.  I believe this year will repeat last year, as we already know that retail sales overall were negative in August and will likely be weak in September.

The next graph is a 5-yr daily of AMZN with 50 and 200 day moving averages. The 200 dma often acts as a AMZN2gravitational force which pulls the 50 dma toward the 200 dma whenever the 50 dma becomes significantly “dislocated” from its 200 dma in either direction.  In this case, the 50 dma is currently 23% above the 200 dma. The last time this degree of separation occurred, the stock rewarded short-sellers with a quick $100 drop for a 25% gain.

AMZN3Finally, lets look at today’s intra-day action in AMZN, which I believe was bearish.  The entire stock market shot straight up at today’s open (Wed, Sept 9). But at lunchtime, when the stock market reversed course and headed lower, AMZN was hit even harder.  For the day, the SPX closed 1.7% below its high of the day, but AMZN closed down 2.4% from its intra-day high.   In the context of the two graphs/analysis above, I believe this is a bearish omen for AMZN’s stock.  In fact, once again AMZN stalled out at $530 and sold off quickly from there.

To be sure, if the Fed is successful in propping the stock market up and pushing it higher, AMZN will move higher with the overall market.  However, AMZN’s current valuation is now just silly.  The stock trades at over 77x “forward” earnings.  Of course there’s one problem with this metric:   AMZN has lost money in two of the last three years, is losing money on trailing twelve month basis and is projected to lose money in this current quarter.  So what makes the Wall Street prognosticators think that AMZN will make any money over the next twelve months?

My report shows why AMZN is absurdly overvalued and how the patient investor can make a lot of money shorting AMZN.  The report includes a section on using options.  Several readers who have purchased this report in the last six weeks have reported back to me some impressive gains using puts:    AMANZON dot CON.


Existing Homes Sales Fantasies

Seasonally adjusted, annualized numbers are in no way the actual number of housing units sold during a given month.  The National Association of Realtors takes samples from every region, statistically infers the number of homes sold countrywide during the month, “seasonally adjusts” that number, then computes an “annualized rate” based on its estimates and its adjustment to its estimates.

Not much different than Emeril Legasse taking a handful of this and a handful of that plus a pinch of his seasoning and “BAM” we got our stew.

Having said that, I have no doubt that there was a bounce in home resales in the late spring, early summer.  Why?  Because of this – click to enlarge image:

MortRatesExisting home sales on based on closings (escrow clears). When the NAR reports home sales for a given month, it’s based on contracts that were signed 30-60 days prior to a purchase closing. July sales are thus based on contracts signed in May/June.  You’ll note that mortgage rates starting moving higher in mid-May.  Historically this always triggers a rush into the market by potential buyers (“can’t risk rates going any higher”).  Furthermore,  I know from watching activity in Denver that there was literal mad scramble by mid/lower-segment buyers to get in on the rush into housing before prices go any higher.

It was stunningly analogous to watching the blow-off top of stock market bubble, when retail investors rush to get in on the action.  I’ll have more to say about today’s report later this week, but I have strong data which suggests that lot of the buying was being done by “investor/flippers.”  Anecdotally: I am seeing more “for rent” signs outside of houses all over Denver than I have ever seen before (even more than in 2008-2010);   Denver has become one big “new price” sign;  inventory is starting to flood the market, especially in the over $1 million segment.  Note:  the NAR’s inventory numbers are highly lagged (2-3 months).

On many days when the SPX gets hammered, the homebuilders rally because the algos sell stocks and buy the 10-30yr Treasuries (flight to “safety”/  earn yield trade).  They also pile into the homebuilders because their black boxes are programmed to buy housing stocks when rates drop (LOL).

But today was different:  the SPX fell off a cliff, Treasury yields dropped, but the homebuilders are getting demolished.  Here’s the 5-day graphs from my 2 favorite short-sell ideas.  You can access these reports here:   Homebuilder Short Sell Reports  – click to enlarg:


Here’s a comment submitted to a reader of this blog today:

Just sold a home in the Chicago suburbs in an upscale neighborhood, on the market for 6 months, lower price 3 times, put money in to update kitchen, finally sold. We had lived there for 20 years, kids grown, most of the neighbors preping to sell next year. All I can say is good luck!

Short Seller’s Journal: More On Housing

The only data that gets more statistically distorted and incompetently analyzed than the housing data is the Government inflation, GDP and employment numbers. In some cases it’s a toss-up. The builder sentiment index is bordering on retardation. Builders are always optimistic, especially because they use other people’s money and take fees off the top. The “sentiment” index always seems to peak at the top of the market.

Housing starts and permits are are almost equally as useless, especially seasonally adjusting and annualizing the data. Literally, a start is counted with a builder sticks shovel in the ground on land which has a permit attached. Homebuilders will always file permits on land they own because it costs next to nothing. “Starts and permits” do not necessarily translate into revenue producing events. If anything, homebuilders always load up on too much land and end up writing it down and unloading a lot of it when the market turns.

Just to show you I’m not on drugs, I wanted to share a some comments I received today and yesterday about my views on housing:

Been reading your take on the housing market for some time and I agree completely. I sold my house located in a neighborhood of McMansions and downsized in April. This action freed-up a bunch of cash and also reduced my real estate taxes big time. I moved out to the sticks where neighbors are few, I can do whatever I want w/ my property (no HOA), and taxes lower. Considered following your advice and just renting, but the rental market here is not very good (high rents, few options) and I found a place I was able to pick-up on the cheap since it was a cash house sale so I could act quickly.

If/when things really fall apart I would rather be where I am at vs where I was (around a bunch of clueless yuppie-types who are used to writing a check for everything).

Get this… the guy who bought my old place financed 104% of the sales price! He went VA which requires no down pmt, but charges all these crazy fees which are just tacked onto the loan amount. So he is already under water and will likely become another “victim of the banks” when the housing and mortgage market blow-up again. Unreal.

And this:

I’ve said it before and I’ll say it again: The market in Denver terrifies me. I am happy that we didn’t end up buying a home late last year / early this year, but according to “news” sources, people just keep snapping up apartments right and left in Denver, and vacancies still seem to be very low. After trying to rent something basic (when we realized buying was out of the question,) we were outbid on APARTMENTS; in some cases, there were 15 applicants for one unit. That’s why we’re living with family for another year to try to save up more money to either move out of state, get a decent apartment here, or try to buy. I am not optimistic.

On the other hand, I do see a lot of “new price” signs everywhere. Doing a simple search on Redfin reveals that a lot of the higher priced homes in the Highlands, Wash Park, etc. (assumed to be hot areas) are sitting for weeks and even months in some cases.

And this:

Thought you might be interested in this. We are also seeing a lot more houses on the market. Brokers are reporting that things are really slowing down. Remember, S.E. Michigan has been one of the strongest economies (fueled by sub-prime auto loans). Thank you for all you do!!!

As for the homebuilder stocks, they are at their most extreme valuation levels in history relative to their underlying financial fundamentals. Debt and inventory levels now exceed the 2005/2006 highs in these metrics, at the peak of the housing bubble. Nominal p/e ratios are also at historically high levels for market tops. And net income is distorted by several accounting gimmicks, the most extreme being that every homebuilder with few exceptions has moved “interest expense” off their income statement and on to the balance sheet (capitalized interest).

Perhaps the only balance sheets more nuclear than homebuilder balance sheets are big bank balance sheets. This will not end well and you can take profit from the extreme overvaluation in homebuilder stocks by taking advantage of my research reports. Here’s my two favorite short ideas right now, although all of the companies I have written reports on will tank hard – click on pic to access reports):


And here’s why – note that both of these homebuilders have substantially underperformed the Dow Jones Home Construction Index over the last year. The balance sheets of these two companies are nuclear – click to enlarge:


You can access my homebuilder reports by click on this link: Homebuilder Short Sell Reports

Once I get my homebuilder reports updated with current financials, I will be raising the price. Here’s a testimonial from someone who bought one of the reports and was able to time the big drop in early January with puts:

I’ve never got a bigger return for the value. $25 for the report, $4k invested in January 2016 near-money puts since August (2014) and closed today (early Feb) for $3.2k of benefit.

As an added benefit, Cramer recommended the stock on the right about 6 months ago!!

The Economy Is Tanking – Housing Is Next

Do not get pimped into buying house now.  Wait 6 to 12 months if you really want to take on that expense because you will get a much better price.  The housing metrics promoted by Wall Street, industry associations and Bloomberg/Fox Biz/CNBC are just as bad as the Government’s seasonally adjusted, annualized rate pig vomit.

Denver is turning into one big “New Price” sign.  Also, I’ve never seen more homes “for rent” in central Denver than now.  Ma n Pa investors will take it in the back side on those homes and I bet many of them are stuck flippers or “swing traders.”  Unfortunately for everyone, many of the Ma n Pa retail price chasers started using mortgages to make their “investment” purchases.  Many of them also checked the “vacation home” box on the mortgage application to get better financing terms.  This will not end well.

Inventory now is piling up across the price spectrum more quickly than the brown stuff waiting to hit the fan blades.  The upper-end price segment of market has more inventory listed than I can recall seeing 2008.  Some small enclaves with psuedo, over-priced mini McMansions have 15-20% of the homes on the market (see Highlands Ranch Golf Club area, for instance).

I wrote an article for Seeking Alpha which explains how some of the “lower profile” housing market metrics are telling a completely different story than the pump and dump headlines on which most of the world reacts:

The bounce in home sales since mid-2010, which has been driven by the Fed’s near zero interest rate policy and $3.6 trillion in QE, has lasted longer than I expected. However, data released recently suggests that the housing market may finally be rolling over. Both mortgage purchase applications and pending home sales declined unexpectedly in July. This data followed a large unexpected drop in new home sales in June (released at the end of July).

You can read the rest of this article here: Renewed Downturn In Housing Starts

Hovnanian will be the first homebuilder to hit the wall this time around. But I have two research reports on companies that will be #2 and #3. I believe one of them may not see 2016’s Christmas. You can access these reports here:  Homebuilder Short-Sell Reports

#2 is the report posted in February.  While it’s not easy shorting anything in this market, patient traders will make a lot of money shorting the homebuilder sector.  The stock prices of these companies have completely dislocated from the underlying fundamentals.  When fundamental reality hits, it will be a bloodbath.

March New Home Sales Fall Off A Cliff – Housing Stocks Plunging

I knew the top  was in two weeks ago when Cramer went on Mad Money and recommended going long three homebuilder stocks.  We know that Cramer’s function on CNBC is primarily to get retail investors hyped up on highly overvalued stocks that his hedge fund buddies are looking to unload but need liquidity in order to sell big positions. Cramer’s picks are notorious horrendously.   Anyone remember Bear Stearns?

New home sales went off a cliff in March vs. February – down 11.4% month to month.  This is in the context of falling mortgage rates, zero-percent down payment mortgages, significantly reduced FHA, Fannie Mae, and Freddie Mac mortgage insurance premiums and a substantial loosening of mortgage underwriting standards.   This is ALSO in the context of new home builders providing an increasing amount of incentives, price discounts (vs. officially reported prices) and mortgage financing.

I will have lot more to say on this later this week when I get a chance to dissect the new home sales report.  Suffice it to say that – on a seasonal pattern basis – March new home sales are almost always higher than February.   If we could “unwind” the Census Bureau’s “seasonal adjustments” and annualization calculus, I’m sure the actual March number for new home sales was complete disaster.

I know that homebuilder margins are getting crushed because both DR Horton and NVR reported flashy top-line growth but significantly lower gross margins.  Homebuilders calculate revenues using the listed price but have to add price discounts and incentives into their cost of sales.   This is why DR Horton was down over 5% yesterday despite top-line and bottom-line earnings “beats.”

The Dow Jones Home Construction Index is down 4% down 4.5% right now and is down over 7% since Tuesday’s close.  It’s down over 9% since reaching a frenzied, housing stock bubble high of 600 on April 6.  This is in the context of the S&P 500 pushing toward new all-time highs – click to enlarge:


The homebuilder stocks are offering us one of the best short-sell opportunities since the tech and housing bubbles popped.  Readers who played my Beazer short-sell recommendation made over 20% in a very short period of time.  Same with KB Homes.  Both of those stocks are now back to where they were when I first published.   All of my homebuilder stock recommendations are going to be home runs.

You can read and understand why here:  Homebuilder Research Reports.   I show in detail how these homebuilders are manipulating their accounting to make their earnings per share look substantially higher than it would be if honest were used.  I also show how they all have accumulated a record level of inventory and debt, in the context of unit sales volume that is one-third the level of the peak of the housing bubble.

You can also see a sample of my homebuilder research by supporting this website – I’ve also included a mining stock research report:


New Homebuilder Short Report – The Stocks Are Rolling Over, Finally

I was a bit early with my expectation for when the homebuilder stocks would rollover again. But, then again, I underestimated the willingness of the Fed to keep the S&P 500 from falling.

HOWEVER, after hitting a high of 540 eight trading days ago, the DJUSHB appears to have rolled over.  It closed down 4 points today at 527, 2.4% below its high a week and a half ago. In the same time period, the S&P 500 has actually risen a few points.  The DJUSHB bottomed out and started higher in October a couple days before the SPX bottomed and headed up in “V” fashion.  I believe the homebuilders are going to sell off before the Fed lets the stock market drop again.

My latest homebuilder features a company that I believe will eventually end up filing for bankruptcy.  It would have had to file probably sometime in 2011 had the Fed not saved the entire homebuilder stock sector with its QE program.  Interestingly, this stock – using a monthly graph which I show in the report – has stayed at roughly the same trading level since early summer 2013.  I have stated many times that the housing market mini-bubble peaked in July 2013.

I believe this is my most well-written and documented homebuilder report.   A recent buyer of my last homebuilder report sent me this email just this morning:  “Thank you for the report. Knock on wood…it has been profitable for me right out of the gate.”

You can access my latest report here:   Homebuilder Stock Reports.

This particular company has more than 4x the amount of debt per unit home sold that it had in 2005.  It also uses extremely misleading accounting, as I detail in my report.  In fact, I show how the Company, in reality, has now lost money 7 years in a row, despite its proud announcement that 2014 was its first profitable year since 2007.   You can also access this report by clicking on the pic below:


I include a section which offers advise on trading/shorting the homebuilders.  I also include a section on using options, with some specific call/put recommendations.   This report is unlike any you’ll find published by Wall Street or subscription research services.   It is much higher quality and very candid.