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Dear Reader,
First, let me start by urging you to read all of today's piece, it includes a bonus trade to position your portfolio for what my analysis sees as a hard six months for Airbnb stock.
Now, let's dive right in...
The blockbuster movie about the ultimate crash of the housing market - The Big Crash - was one of the best portrayals of the 2007-2009 housing crisis. On that I think we can all agree.
What most people don't think of is the period that led up to the crash.
Not the weeks that led to the tipping point.
You know, where Mark Baum and his crew were kicking in the doors of the rating agencies to figure out why the market wasn't crashing.
I'm talking about the years of overindulgence that led up to the crash.
We've seen that exact situation build over the last three years.
Back in 2005 I was on a family trip to the lake in Michigan.
One day while we were out running around the lake in our boat I wondered "how can I get one of these cool little cabins on the lake?"
My family would love it and it was only 7 hours from our house in Cincinnati, the perfect long weekend spot!
I called a local realtor and asked.
The reply was short and to the point.
"You can't... they're all owned by the same families."
I was told that there were about 20 families on the lake that had bought almost all the 100-plus houses to form "compounds".
Now, these weren't the Rockefeller families, or the Fords. They were the Smith's and the Johnson's that worked on the lines at the Ford plant.
The realtor went on to explain that the lake had been bought by the hourly workers at the auto plants. Average wages with gorgeous "compounds".
But that was going to change, soon.
A few years later interest rates moved higher and the variable rate mortgages popped.
Suddenly more than 75% of the lake was up for sale for 50% of the prior year's value.
It's about to happen again.
Earlier this year I put AirBNB (ABNB) on my bearish list.
My outlook was based on the same story, with a twist.
You see, over the last four years or so we've seen a similar movement, but people haven't been building compounds for their families. Instead, they've been playing Monopoly.
It started with everyday folks buying a small vacation spot and renting it out on AirBNB or VRBO.
Then it grew, two turned to three properties. Three to six. Eight to sixteen properties. And before you knew it your neighbor quit their job as an attorney at Proctor & Gamble to become a full-time property manager.
Now they've got a garage full of paper products, cleaning supplies and replacement furniture.
By the way, that's a true story that happened with my neighbor. And I'm a little worried.
I'm worried because the Michigan Lakehouse situation is getting ready to play out again.
This time it's not because buyers levered themselves with subprime mortgages. Instead, it's a good old-fashioned turn in the market.
You see, demand for Air BNB and VRBO reservations have dropped. Considerably.
There are two basic themes playing out here.
First, the consumer has become more budget conscience.
We're spending less. And the first thing to drop out of the budget are the extra travel and vacations. That's a hit to the rental industry.
Second, the hotels want their business back, and they're fighting for it.
Room rates in hotels have been moving lower as they compete with the "other" rental market.
Hotels are also packaging things nicely to compete against AIRBNB and VRBO rentals, little perks and benefits.
Finally, regulatory forces are creating a headwind against the AIRBNB and VRBO market.
Cities like New York are cracking down on the short-term rental markets as housing inventory continues to get squeezed.
Even the city of Cincinnati is moving forward with new regulations against the industry,
This trifecta of pressure causes me to revisit my early 2023 call on AIRBNB shares.
To date, the stock is trading 50% higher for the year. That outperforms the Nasdaq 100, Apple Inc. (AAPL), Microsoft Corporation (MSFT) and Amazon.com, Inc. (AMZN). The outperformance is because the market has continued to lean into the strength of the consumer.
I'm here to tell you that I think the consumer's strength is weakening.
It's the reason that Carnival Cruise Lines is breaking down.
It's the reason that the airlines have taken a nosedive (pun intended).
And it's the reason that Airbnb, Inc. (ABNB) will finally start acting like I thought that it would in the beginning of 2023.
Here's the current daily chart.
Today's trading is breaking the shares through their $130 while the 50-day moving average just shifted into a bearish trend. This suggests that the next 4-6 weeks will encounter selling pressure.
Back the chart out to a monthly view and you'll note that ABNB's 20-month moving average is just a hair below current prices sitting at $121.
This is important because the 20-month represents the technical line of demarcation between long-term bull and bear market trends.
A break below that price will target $100, quickly.
The fundamental picture for Airbnb has cracks. The technical picture is fracturing. And to make matters worse, the crowd is all-in on ABNB shares as sentiment remains overly optimistic.
That combination is normal bad for any stock, which is why I'm positioning for a target price of $100 on ABNB.
Here's the recommendation that I'm following to position for that move:
Buy-to-open the ABNB March 15, 2024 $130.00 Puts using a limit price of $14.50 or better
I'll check in on the position with you in a few weeks as I see this move as being imminent.
And ABNB isn't the only stock that I'm eyeing...
I'm loading up my watchlist right now with some of the biggest companies in the market. Stocks like Nvidia... Microsoft... and Meta that are already trading over $300 per share.
But the strategy I'm using can let you unlock MASSIVE discounts of up to 89% LESS than the current share price.
And it can unlock 10X the profit potential of traditional investors.
I wish you the best trading success,
Chris Johnson
Quantitative Specialist
The post How to Have Airbnb's 20 Percent Drop Pay for Your Next Spring's Vacation appeared first on Power Profit Trades.
About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.