Remember Crocs ($CROX)? I do. (October 11, 2021)CROX QQQ SPY
I am going back to the well on Crocs ( NASDAQ: CROX ). Last week I noted that Crocs ( NASDAQ: CROX ) wasn’t looking that great. It had cracked down here below the 50, really had a steep sell-off. And my suggestion was, that you are actually looking for a short entry on this stock. A stock is broken like this, and then when you look at the rest of the market and the rest of the market looks pretty brutal too. Then you see a stock like Crocs ( NASDAQ: CROX ) and that’s a stock that you don’t want to be in. In fact, it would be nice to be short that stock.
And then the very next day here, which is today, when the market initially, like for a cup of coffee, went a little bit higher, Crocs ( NASDAQ: CROX ) actually fell and hardly rallied at all before it sold off almost another 4 percent today. So I am just telling you, this is a stock that you don’t want any part of because it has fallen so far, personally, I would not be shorting this stock. But I am not telling you that shorting it will actually be a losing trade right here.
You could see this stock continue to fall down to hit the 200-day moving average. What it’s going to do after that, I have no idea, couldn’t tell you, I’m not Dennis Gartman, so you could see the stock continue to fall. Personally, I believe that the best trade is if you get some kind of a rally up here, and then it fails. This is a broken stock, confirming that it’s broken, but then it does rally. Maybe it comes to the 50-day moving average and that is when it fails.
And so what you would wind up doing is this, I’m giving you your plan upfront, we will say this is an up day, green bar. It rallies back up to the 50, tests the 50, and then the very next day it starts to trade down. You don’t have to wait until the end of the day. You see the stock test this 50-day moving average and then the next day it starts to trade down the other way.
So what you do is, you go ahead and short the stock, and then you put a buy stop right up above the 50-day moving average. Now you have got a really low-risk trade because your risk is limited to where you shorted the stock, versus where you are going to get stopped out at. And that is actually just a very, very, small amount of money. So you are shorting right, you are taking a small amount of risk, and then frankly, you stand to make a lot of money as Crocs ( NASDAQ: CROX ) does a little reversion to the mean, meaning the 200-day moving average.