Harley-Davidson

This Stock Is Bad to the Bone Right Now - but It's Good for Fast Gains

My "Best in Breed" approach to cherry-picking stocks and sectors with the highest "breakout" potential has given us a whole slew of fast, double-digit gainers in the past three weeks. What's more, these stocks should continue to pay - and pay big - as the breakout trend takes hold and plays out.

This approach works the other way, too, believe it or not. Because it bull's-eyes the strongest stocks and sectors, it also spotlights the "weakest of the worst" - stocks you might avoid.

And it would be understandable if you did steer clear. After all, these stocks are dropping like stones.

But the truth is, you can make some nice, easy profits by playing these dogs just the right way, like I recommend in my research services.

Right now, I've isolated a stock in bad, bad trouble that should be good for a juicy double-digit profit to start, with more to come...

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HOGging the Headlines for All the Wrong Reasons

That ol' "Milwaukee Iron" is branching off into Thailand, Brazil, India, and Australia.

If you were anywhere near a television or computer today, you know Harley-Davidson Inc. (NYSE: HOG) is all over the headlines because it plans to shift some production overseas to avoid increased EU tariffs on motorcycles.

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The EU duties zoomed from 6% to 31% on Friday, adding a whopping $2,200 on average to the cost of a motorcycle. Harley-Davidson said it would absorb these added costs, estimated to be around $90-$100 million this year.

More's the pity: HOG shares had been digging out from beneath a three-month, 30% decline that began in late January. In fact, the stock gained around 19% in about six weeks, a move that had the shares pressing on their 200-day moving average.

But that all changed in little more than a week, as the stock was rejected at the 200-day and is now trading below its 50-day moving average with yesterday's loss of just under 6%.

Harley-Davidson

This would all be terrible news if you were long, as up until a few days ago, plenty of folks were.

But here's the thing... followers of my "Best in Breed" recommendations wouldn't have touched HOG.

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In fact, they probably would have been short. Why?

First off, the stock has been underperforming the consumer discretionary sector all year, as is evident in the chart of HOG's relative strength versus the Consumer Discretionary SPDR Select Sector ETF (NYSE Arca: XLY).

HOG vs XLY

Second, as mentioned above, the stock was solidly rejected at its 200-day moving average. This started the downtrend that was exacerbated today.

Third, short interest on HOG shares has been declining all year. In fact, the number of shorted shares dropped 8% during the latest reporting period. This drop has spanned bullish and bearish runs by the stock this year, suggesting that a short squeeze is not in Harley stock's future.

In short, the "Best in Breed" screen showed the weakness coming - and it's showing us a nice entry point on the bearish side of the trade.

With strong overhead resistance in place, disappearing short interest and severe underperformance against its sector peers, look for more weakness ahead.

Buy the HOG Aug. 17, 2018 $45 put (HOG180817P00045000) to leverage the expected downside and clean up as this stock continues to tank.

Unearthing the worst of the worst can be just as lucrative as finding the best of the best. That's the beauty of the "Best in Breed" system - it does both using the same methodology and keeps you on the right side of the trade.

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