Click here to get a PDF of this post

 

 

 

 

 

 

 

With the market in correction and with many of my favorite monster stocks like Apple and Price Line stopping me out a week ago after losing their 5 day ema and then after I was out even falling back to their 20 day simple moving averages. I had to look for other money making trends. When I heard the phrase “accounting irregularities” I then attempted to sell Groupon stock short, my broker could not find any shares to sell so I bought put contracts that were in the money so I would have the right to the whole downside. After my short with puts at $16.50ish Groupon continued to fall, When I was up 115% in profits with my initial puts I bought 10 more put contracts and doubled down my bet at $13.50. I am currently short 2000 shares of Groupon with 20 put contracts in the money. The small trading size is due to my risk management only allowing me to risk 1% of my total capital per trade. I do like that the puts cap my losses that could be unlimited if some incompetent company steps up and bids for Groupon as was rumored about Travel Zoo that sent that stock racing up. I do not believe that will happen with Groupon for 10 reasons.

  1. Groupon has never been profitable.
  2. In reality it has no real chance to be profitable in the future.
  3. An $8.6 Billion dollar market cap for an unprofitable company is very reminiscent of the Dot.com bust in March of 2000.
  4. They have no real competitive advantage over their endless up start competitors around the country and world.
  5. The chart says money managers are getting out, not in, day after day.
  6. They can not even manage their accounting.
  7. The original holders of the IPO are locked in until June 1st, so they have not even began to sell.
  8. Negative -10% profit margins.
  9. Pushing against all time lows.
  10. Starts high ends lower day after day.

This stock could end up in the single digits. Really what is stopping it? The danger lies in the fact that 63% of the float is now short and brokers are even recalling shares because investors want out. So the question is when will shorts cover? I believe that as long as they are winning they will not cover their shorts, they have great convictions of a single digit price, more accounting problems, and the insider sell off in June. Time will tell, I will be holding until I am stopped out with a close above the 5 day ema, that is a tall order. I would like to see some longs really panic for the exits. I think $RENN is a great historical example of what could happen here, $RENN fell from $21.00 to $3.27 before rebounding.