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What are Short-Sellers Betting Against?

Stock markets are ripe for a steep correction. After running up since Q4/2023 on the hope of six interest rate cuts, high inflation changes the macro outlook. With a low chance of two interest rates ahead, short-sellers may go after richly valued stock.

Bears are attacking Trump Media (DJT). The company’s complaint sent DJT stock up by 25% last week.

In the last few weeks, the stock market’s downtrend benefited short-sellers. They earned profits of over $25 million, according to S3 Partners. Still, bears lost around $190 billion after the remarkable 2023 stock market rally.

Bears might bet that the Fed will double down on their commentary that interest rates will not change in June or even September. They may increase their short float against the benchmark S&P 500 (SPY).

In the tech sector, some of the Magnificent 7 are shortable. Apple (AAPL), however, is not a good short. The stock is already down in 2024.

Bears may bet against the cryptocurrency market. MicroStrategy (MSTR) aggressively bought Bitcoin (BTC-USD). The halving event increases Bitcoin supply, potentially hurting BTC prices.

AI chip suppliers like Nvidia (NVDA), Super Micro Computer (SMCI), and AMD (AMD) are potential shorts. While SMCI expects strong growth ahead, its shares trade at a premium. AMD is consistently behind Nvidia, so bears may bet against AMD.

Intel (INTC) is already down considerably. The stock is over-valued at current prices but is not a good short. It gets strong support from the government through grants to build plants domestically.