Before I type out this undoubtedly long winded but well thought out thread. PSA start reading the forums post and contribute to them there are a lot of really bright minds on tf everyday that have good info but it gets lost in the shuffle and stop playing 0DTE SPY contracts I’m a choppy ass market that goes up with bad news and down with good news. And sometimes we have no idea which way the news makes it go. Or as The House says JPow craps his diaper and market moves. There are so many 100-1000 percent plays or even more I couldn’t even list them all. I typically try to focus on premarket when I figure out what I’m going to trade. I purposely look for a ticker that is moving the opposite direction of SPY if it has strength or weakness and SPY ends up moving the same direction it’s simply more cocaine up the nose of that ticker. To that side. As noted today one simple tank of a large size ticker in SPY can ruin your whole day as @rexxxar noted in his SPY thread. If we get a Green Day I look for something that had been beat down lately without reason this week traded LULU in that regard because it got clipped Friday on NKE earnings well it was green market had more room to recover. Same goes with now I will watch KMX AMC CVNA type tickers that have moved up for no reason for puts on red days.
Now onto what this post is really about. Targeting automotive tickers for recessionary climate plays. Put these on your watch list if interested watch them chart your supports resistances
Largely the automotive industry is relatively slowdown resistant. People need cars have to have them serviced need parts etc. so I’m going to break this down in several categories. New car dealers used car dealers. Legacy manufactures and EV manufacturers.
1:) Let’s start with EVs the darling of the industry. Tickers include
TSLA, RIVN, LCID, PNSY
EVs are getting propped up currently with fuel prices at historically high levels and the federal governments push to go electric these largely should be pumping.
However heading towards a recessionary climate it takes something like 10 years to recoup the initial upfront cost.
3 of these 4 tickers are startups relatively speaking. The worst time for a startup…. Heading into a recession.
Whose gonna spend 100k on an EV when inflation is rampant. Rich people mostly. Well only so much demand for these when tightening happens.
2:) used car dealers tickers include
CVNA KMX
Used car values are at an all time high a couple year old used car many a times brings what it sold for new. Problem lies within acquisition costs. These two mega used dealers have been paying up to keep the parking spots filled. As I use the term we can’t sell concrete. But they have went to extraordinary levels. Here is why I am overly bearish on these guys.
High acquisition costs coupled with slow turn means ineventory in the water. It means you are buried in your merchandise. Both of these companies struggle to post a profit Even in the best of times the last two years have presented. CVNA is largely on the bubble of collapse and KMX as we know just got slaughtered last quarter before the real proverbial shit has hit the fan.
They also provide financing rising rates and defaults lead to less margins from this aspect and likely losses.
3:) new car dealers tickers include
AN LAD PAG
These are the tough ones new car demand is heavily backlogged and in last couple years has become the cash cow of the dealer. 2 years ago the average gross per unit on a new car was less than 1000 per car. It’s now ballooned over 4000 this is all mostly due to supply vs demand. It will largely take a few more years for this to catch up.
However the bearish aspect. New cars keep getting more and more expensive. With rising rates this makes them unaffordable and pushes consumers towards late model used cars.
4:) Legacy brands IE manufacturers tickers include
F, GM, STLA, TM
For the most part these guys are still running strong large margins with overwhelming demand. However supply chain constraints and inability to further expand the pipeline along with rising costs for parts plus labor and shipping. Any decline in demand and some leveling of supply they start to feel the pain. Right now it’s build as many as they can as fast as they can and they are sold.
One problem with these are the old saying “pigs get fat hogs get slaughtered” the price increases on the New cars has out paced any kind of inflation you can think of. Eventually with the rising rates and rising cost they will price themselves out of the market in come factory based incentives and adverstising expense. When’s the last time you was a car ad while watching the football game it’s been awhile. This in turn leads to less revenue.
4:) @tedro asked good question so wanted to add luxury brands tickers include
RACE , BMWYY, MBGYY, POAHY
These are high end luxury cars. This would be the last segment I’d expect to see a decline largely bought by people well off least affected by recessions or downturns. Many of these folks own business don’t pay interest etc. however if there is a recession or decline their revenue sources become affected as well. It just takes a bit longer to hit them as the everyday American. Any increase in shipping or import cost could have a negative affect here as well as they are largely built in Europe so keeping an eye on the evolving European economy is worth while here as well. If the US strives in a bubble they could still take a hit.
5:) adding a 5th segment here Chinese EV manufacturers that trade on the NYSE thanks @Shadowstars
I’d largely place these in the EV segment they will move with US EV stalwarts. However we really don’t know how soon the Chinese market could collapse as there is the outstanding evergrande issue going on there and the strength of their banks or financial system are relatively unknown these could tumble first if they do I’d look to play them as well as the US EV segment.
Lastly I want to caution the prevailing thoughts that this is some inevitable crash. This segment may not it has a huge back log of demand and still has supply problems. How can we monitor this ? I will certainly keep everyone informed of the situation in the real world auto market but these can be geographical essentially what is still rolling here might not be on the west coast etc. we need to watch for our local dealers lots beginning to fill up if the same blue truck has been sitting in front row for weeks etc. watch for downturns Used car values and so on.
The Auto sector could largely be behind the curve on any kind of burst we see and may need some largely scale catalyst such as some banking turmoil some kind of further supply chain disruption further increase in gas prices
Please contribute to this thread and let’s try to stay ahead of this and all make some money.