Disclaimer: I'm not an advisor or certified in anyway. These are my thoughts and opinion so make sure you do your homework and trade accordingly.
So why short Tiffany & Co (TIF) while it's clearly in a bull trend?
I have no experience buying jewelry and by looking at my calendar this past year I've had over 8 weddings. These are signs to be bullish on jewelry, especially with all the new money from IPOs and all time highs in the stock market. They also increased their dividend by 12% which also helps with the appreciation. However there is an overall theme going on during this earnings season. High end luxury retail has been getting crushed. Take a look at some names: JWM, BID, COH, KATE, KORS, RL. Granted most of the products these stores sell don't compare to a diamond ring but it does show a good picture of the overall sentiment. Also take a look at the S&P Global Luxury Index. As S&P500 makes new highs this index looks like it could roll over.
But the main catalyst I have to short TIF is CHINA. For the past year China has been cracking down on corruption, money laundering, miss use of government funds that even the cognac makers are feeling the pinch! If you've ever done business in China you know nothing will slow them down from drinking!
Another segment in the luxury space that has benefited from China are the casinos: LVS, WYNN, MPEL, MGM. However since the beginning of the year they have been huge under performers compared to the overall market. And why is that? Because of reforms in China. People are pulling money out of China as fast as possible buying up properties in the US and Canada.
If you look at TIF's last earnings the majority of the growth came from Asia. Now, the only fundamental risk I can think of to send TIF sales to the upside is if these people in China are buying jewelry as a way to move their money out of the country. It is a possibility, but I don't know the rules or what type of loop holes they can get around it, its only a theory.
Wall Street sentiment as always is bullish. There is only one analyst that has given any warning and that is Christian Buss from Credit Suisse. With the markets euphoric state, any miss in the top/bottom line or guidance will send this stock crashing.
A slight miss I'm targeting 95-96. A big miss I expect a gap fill around 90-92 creating an island pattern. The risk to the upside is around 103-105. I will likely buy JAN15 95 or 97.5 PUTs today or tomorrow before earnings. I'm buying JAN15 because if it does become a miss trade, I can sell some puts to see if the trade will work out later this year.
(Disclaimer: I am currently short LVS and KATE)