Bets against U.S. stocks just hit a seven-year high…
You have to go back to the last crisis, in 2008, to find a time when investors were this negative, based on “short interest.” (I’ll explain this in a second.)
The important thing here is this:
Stock markets don’t peak when everyone is scared. Stock markets peak when EVERYONE is optimistic (like in 2000).[ad#Google Adsense 336×280-IA]Let me explain…
Short interest on companies listed on the New York Stock Exchange (NYSE) just hit a seven-year high.
This is the highest level we’ve seen since the 2008 financial crisis.
You might not be familiar with short interest, but it’s a simple metric… NYSE short interest is the total value of all short positions on NYSE-traded stocks.
“Shorting a stock” is simply betting that its price will go down.
So when short interest is high, it shows that many investors expect stock prices to fall. Short interest is at an extreme today – and like many indicators we look at, investors tend to be wrong at the extremes.
The chart below shows NYSE short interest over the last 20 years. Take a look…
As you can see, NYSE short interest peaked during each of the last four major stock market corrections – 1998, 2002-2003, 2008-2009, and 2011.
Short interest also tends to increase as stocks are falling, and peak when they’ve bottomed. Of course, we can’t know if short interest has peaked today, or if it will continue higher.
The important thing is, we’re already at 2008 levels of investor bearishness… We’ve already seen a 10%-plus fall in stocks. And investors are clearly scared.
History tells us this kind of negativity tends to occur closer to market bottoms than market tops.
To me, this is yet another sign that the correction that we’ve gone through in stocks since August is just that – a correction. This is yet another sign that higher stock prices are ahead.
We will continue to follow our trailing stops, in case I’m wrong… But this seven-year high in short interest is just one example of why I feel very strongly that there’s still significant upside potential ahead of us in stocks…
Source: Daily Wealth