This one has nowhere to go but down

In this market with high headline risks we are facing daily, you got to have some short positions in place to protect. Yes, it seems difficult to think about the downside for many when the market has been in a virtually vertical straightline up nonstop for 10 weeks. But believe me, the rug will be pulled again by the market suddenly when no one feels the risk. It is not a matter of if but just when. So for myself, I always try to look for some short targets as one of ways to hedge. What’s is a good target, you may ask? Well, one easy target will those dying businesses that are maintained status quo when the world has already changed fast. Just give you some famous examples. Remember the used-to-be very famed brand Kodak? It fell apart within just a few years after the digital photo era emerged! Or Blockbuster (the video renting business) that was so popular less than 10 years ago? It has disappeared after failing to compete with Netflix! More recently the toy giant, Toys R’Us? Bankrupted last year due to unbearable debt burden in facing declining business as the result of aggressive invasion of the online e-commerce. The theme for these failed businesses is amazingly common: a dying business with leveraged debt, a recipe for disaster!  If you can find such a business, it is very safe to short it as far as I can see. This is especially true when the general market is in a correction mood, then bad stocks often fall much harder than others. Today, let me share with you one such stock which I believe will soon crash. It is also a famous name and many of you must have heard it: Discovery Inc (DISCA). Yes, this is the company that owns the very popular TV channel, Discovery. Even now it is still quite popular I think. The company also owns other real-life entertainment channels like the Travel Channel, the Food Network, TLC, and Animal Planet. But do I need to tell and convince you that TV business, especially the pay-TV subscriptions, is a declining business and in a slow dying mode with an accelerating pace?  How many of you will sit in front of a TV to search for the content you want to watch these days? Virtually everything is available on YouTube or something similar and largely free of charge. For quality contents, Netflix is offering really good ones with very low fees. While you still can argue Discovery may continue to offer something unique, one thing is very clear that it cannot compete with booming Internet mobile services and its traditional audience is disappearing and very fast! So how the Discovery management is dealing with the challenge? In the same old fashion way as those which have already died: loading up debt to buy more average TV channels like Scripps Networks (like HGTV), the Food Network, and the Travel Channel. Its debt load has jumped by 5 times in the past 5 years and it can never pay it back I think! This outdated business model can never effectively compete with the fast changing mobile world and is doomed to die. While I cannot tell you the exact date but I won’t be surprised to hear a bankrupted Discovery in not so long time.

Of course, for our purpose to make money by shorting it, we don’t need to wait till the time actually comes. The market is a forward looking animal and it can see far ahead of time before the final disaster hits. What makes me very confident to say this is its technical set up. As you can see below, it is in a very bearish H&S formation, which to my eyes has nowhere to go but down moving forward! I think this is a perfect target to short for the sake of hedging in this volatile market. If the market indeed tanks, it will crash with it. Even the market is doing well, DISCA will still likely struggle due to its fundamental and technical problems!