This daily e-letter is called “Everybody’s Wrong” for a good reason.
We’re not here to waste our time with fundamentals and/or geopolitics.
That stuff is too hard.
It’s much easier to bet that humans will make irrational decisions.
That’s way more consistent.
They won’t teach you that in your overpriced MBA program.
And it’s not a part of the CFA curriculum.
Heck, it’s barely a part of the CMT program.
This is something you need to figure out on your own, through experience and study.
This Divergence Is Huge
When humans’ stress levels are elevated, they make poor decisions – and at the exact wrong times.
My bet is they’ll continue to do that every day for the rest of our existence.
What we do here is identify periods when there’s a divergence between what people believe is happening and what is actually happening.
Last week, I pointed out how angry the liberals are, expecting the stock market to fall the rest of the year.
The British journalists parading around as economists might somehow be angrier.
It’s not just what these freaks are out there thinking.
You can also see the irrational and psychotic behavior expressed in the open market.
Short interest for the U.S. Stock Market is currently at levels rarely seen throughout history.
This chart is from the BofA Global Fund Manager Survey. What it shows is startling.
Not many times over the past two decades have we seen this many investors betting on lower prices.
You can count them on one hand: COVID, the European Debt Crisis/China crash in 2015, and the Global Financial Crisis/Great Recession.
They’re just as bearish today.
Let me say that again: Liberals are as angry as they’ve ever been, even compared to some of the worst market events in living memory.
And the short-sellers are out there shorting every stock in sight.
This is AFTER back to back years of 20%-plus returns for the S&P 500. The Nasdaq doubled over the past couple of years.
We’re seeing historic returns among stocks all over the world in 2025.
Shorts Are Guaranteed Buyers
Humans can’t think straight when their stress levels are elevated.
They’re out there fighting trends.
They’re so angry and scared that they’re completely forgetting about the fact that asset prices trend.
And the trend is, and has been, up.
One thing that people forget about short-sellers is that the only way for them to close out their positions is to buy back the stocks they’re short.
In other words, shareholders – people who own stocks – are only promising to be future sellers.
Shorts are guaranteed to be future buyers.
The more short-sellers, the more future buyers there are.
And, right now, there are more shorts out there who will eventually have to buy stocks than at almost any other time this century.
That’s a good thing for those of us who own stocks and who embrace this bull market.
It’s not so good for those who act irrationally and try to fight trends because they’re upset about who won an election…
Or they think the Fed is too slow…
Or they can’t believe stocks are rising in this economy…
Should we feel sorry for people like this?
I don’t. I’m here to profit.
And humans behaving irrationally makes it easier for me to do that.
Shoutout humans.
Stay sharp,
JC Parets
Founder, TrendLabs