Short the Shortages

I shorted semiconductor stocks a few weeks ago because they were bearish setups in the midst of daily headlines screaming chip shortages. One thing many novice investos miss, and even veterans at times are guil;ty (myself included) is failing to adjust for the fact that the market already knows everything. Sometimes as in February 2020, they do not factor it in because they don't really understand it yet. Those are the best setups because it presage a big move when the market realizes it is wrong. Most of the time though, the market is "right." Therefore, when the market goes opposite to the overwhelming news flow, when "everyone" knows something like the shoeshie boy anecdote from 1929, you pay attention.

What's the next trade? Autos.

When I look at the month-on-month CPI heat map, that looks a lot like the effect from stimulus checks. It isn't cost-push inflation, it is demand-pull inflation. If stimulus is over for now, then we might get a bigger downturn in the market before the next round. The shortage in autos might turn out the same way as it did for the chips sector.

This was a short target of mine back in 2018 and I hadn't looked in awhile, but with the Russell 2000 breaking down, I looked into its holdings to find some juicy targets. This in is the top-10.

That's a nice rounded top forming, and if it loses $340 the next support area is around $230 per share.