So I’m greenside on No. 1 at Augusta National Golf Club.
My friend, who’s been going to The Masters every year since he was eight, leans in and whispers to me…
“You see those people over there?”
And he points to the overcrowded tee box at the first…
“Those are the people buying puts with the VIX at 50.”
And – on the front row of the No. 1 green all by ourselves – we were holding what we knew they’d be buying, and soon.
In other words, we were selling what they were buying.
When I talk about a “divergence,” I’m referring to the market doing one thing while investors and traders are doing something else.
We do not want to be where the people already are.
We want to be where the people are going to come.
Why? Because that’s where the money is made.
Passionately Pessimistic
This is what sentiment looks like on Good Friday…
The American Association of Individual Investors just published one of the top three most bearish readings in the past 20 years.
That black points to the fact that more than 50% of individual investors are bearish for the eighth consecutive week.
That’s never happened before in history – not during the Global Financial Crisis/Great Recession, the Dot-Com Bubble or even the COVID Crash.
Here are eight more signs pessimism is piling up:
- Short ETF Volume is hitting all-time highs.
- According to the Bank of America Fund Manager surgery, Investor Risk Appetite fell to new two-year lows.
- The percentage of fund managers who think global corporate profit growth will improve just hit the third lowest levels in 30 years.
- The profit outlook from investors is the most unfavorable since 2007.
- Recession expectations rose to the fourth-highest level in the past 20 years.
- Global growth expectations are hitting new 30-year lows
- The Global Fund Manager Survey Investor Sentiment sinks to its fifth-lowest level on record.
- The latest readings show a record number of fund managers intend to cut U.S. equities.
Everybody is scared to death of U.S. stocks. A recession is imminent.
But the bull market is alive and well. And nobody knows what the economy is going to do.
It might be a good thing that the stock market is closed today.
Gives people a chance to step back and take a look at the big picture.
As I wrote on Monday, I was fortunate to be able to go to The Masters last weekend.
On Saturday, I saw Rory McIlroy sink a birdie on No. 1 from that front-row greenside spot.
Why did I get to see that? Because I’m special? No.
It’s because we were where we knew the people would eventually want to be.
These folks were standing outside the tee box, struggling for an angle.
Then they ran down to the green, missing the in-between moments as golfers and their caddies navigate the links.
They’re excited. How could they not be excited? I was excited.
But they don’t know how to see what they want – and need – to see.
So they just follow the crowd…
And they miss everything.
They were mispositioned.
Fortunately for me, my host knew exactly where to be and when to be there.
He’s a financial advisor and a client too.
So he knows what that means when it comes to seeing what’s really happening in the stock market.
Your Perspective Matters
We talk about the primary trend for stocks being up and to the right.
The divergence right now – and it’s a big one – is that investors just don’t believe it.
In fact they expect the exact opposite of what is really happening – at historic proportions.
We bought stocks this week. We bought stocks last week.
I’m pretty sure we’ll buy more stocks next week.
This is the type of behavior that will be rewarded, and soon.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs