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TheStreet Open House

Why I'm Shorting Gilead: Sentiment Is Too Positive Ahead of Earnings

Stocks in this article: RSH GILD AAPL

NEW YORK (TheStreet) -- I recently wrote an article about RadioShack (RSH), where my main argument for buying was that everyone was negative. While this trade is still in its infancy, I will illustrate another recent example of a fade that cashed big profits for those who resisted obvious opinion and went against the grain.

Knowing absolutely nothing about livestock, I wrote about shorting lean hog futures in the face of a virus that everybody said would wipe out the pig population overnight. Of course, the fears were overstated as I suspected, and I made out like a bandit the next day as hog prices gapped down.

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As a contrarian, I do trade potential popularity for simply being right and making money. It's a tough gig. I'll probably get ripped by the bulls for daring to short Gilead Sciences (GILD - Get Report). Nevertheless, I'm making a small bet that no matter what Gilead's second-quarter earnings look like on July 23, the stock will still sell off.

Let me first say, this is not a high-conviction trade. I don't know very much about Gilead, but it doesn't matter. I've made bets like this over the years and they win more than they lose.

Still, the chance of taking a loss is high. I put the odds at about 60:40 in my favor that the Gilead short will be profitable within a week of Wednesday's earnings release. This is not a long-term trade, and if I'm right, I'll be covering my short the following morning. With Gilead trading at historic highs, up over 300% since 2012 and nearly 50% since April, there is no margin for error on this highly anticipated second-quarter earnings report.

The 60:40 odds may not sound so great, but profiting on a trade like shorting Gilead into its quarterly earnings comes down to being able to understand and properly manage obvious public sentiment cues while blocking out the noise. For Gilead, the positive sentiment is off the charts. Analysts can't stop talking about how big a blowout quarter Gilead is about to report: 

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