Hey trader,
Brandon Chapman and Don Kaufman saw this one from a mile away.
Carvana reported after the close on February 18th. The expected move was roughly $45.
The stock hit a low of $271.03. That is nearly double the expected move, all to the downside.
Brandon was leaning bearish ahead of the print. Members who followed that setup with puts or call spreads walked away with close to a hundred percent return.
I give full credit to Brandon and Kaufman on that call. But the return is not what I want to talk about today.
There is something you need to understand about Carvana. It belongs to a category of stock that has ended careers, wiped out accounts, and fooled smart people for years at a time.
I call them widow makers.
And right now, this market is full of them.
When I break down the Carvana trap, you’ll see precisely how the machines knew the truth long before the headlines did.
Let me walk you through it.
I closed DVN earlier this month for a nearly 30% gain. 83% Winners since July.
When no one wanted oil and energy stocks, I loaded the boat, snapping up SLB for a healthy 31% as well.
Yet, my current positioning would SHOCK most of you…because it could be my BIGGEST payday yet.
Click Here to learn more about how Genesis COG works.
The Widow Maker Playbook
I ran a hedge fund 25 years ago. When managers needed to generate alpha, they reached for names with no real valuation anchor.
They loaded up on the narrative and called it outperformance.
Carvana fits that profile exactly.
Nobody knows what this stock is actually worth. Not the analysts covering it, not the portfolio managers trading it, not the auditors reviewing the books.
Their accounting is completely wonky. They received a non-qualified audit opinion, which means even the people signing off on the financials are not fully certain.
When I read a balance sheet like that, I walk away.
You trade a stock like this on three things: narrative, supply and demand, and prayer.
The Number That Exposed the Game
Carvana reported $4.22 in earnings against an estimate of roughly $1.40. That is a 300 percent beat.
You cannot beat by 300 percent without cooking the books.
I have been reading balance sheets my entire career. Going from 64 cents in earnings to $4.22 is impossible for a company with this business model. Even Jensen Wong would not pull something like that.
The market did not sell this stock over guidance concerns or macro fears. It sold because the market smelled the same thing I did.
The stock collapsed 29 points the morning after earnings.
Here is what makes a widow maker so dangerous:
- Analysts set wildly low estimates, creating the illusion of a massive beat quarter after quarter
- No one can model the true earnings power because the accounting is unreliable
- The stock runs entirely on narrative until that narrative breaks all at once
- When it breaks, the move is violent and there is no early warning for those caught long
That last point is critical. By the time you see the reason, the damage is already done.
The machines do not wait for headlines. They do not wait for your confirmation. They identify the footprint of a broken setup and strike before you even have a chance to react.
How to Handle It From Here
If you are going to trade Carvana at all, there is only one acceptable approach.
Options and spreads only. Trade it from week to week or day to day.
If you trade the stock directly, you buy tiny amounts and hedge the moment you enter. You do not carry this overnight with real exposure.
The person who bought Carvana at $440 in the after-hours session thought they were smarter than the market. They woke up down $70 per share.
I believe this stock will eventually be exposed for accounting irregularities. When that day comes, it will trade like GameStop on the way down and nobody will ever want it again.
I would sell this stock and never come back — not even if it dropped all the way to nine dollars.
The Genesis COG System identified the bearish momentum deterioration on Carvana before earnings delivered the breakdown.
It gave members the framework to position for a move that doubled the expected range before the open.
Most tools watch price and tell you what already happened. The Genesis COG watches the machines that move the price — and fires the signal before the move hits the tape.
That is the difference between getting steamrolled by a widow maker and being on the right side of it.
Professor Jeffrey Bierman
Creator of the Genesis COG System