“I wish I knew enough to short,” my friend said…
He explained that he was tired of a certain company dragging down his investment account. And he told me he hoped to start “short selling” – in other words, betting stocks would fall.
As you’ve probably guessed, this friend isn’t a seasoned investor. But a short trading strategy is easy enough to understand. Instead of betting prices will go up, you’re betting they’ll go down. If you’re right, you make money.
I pointed him to some short-selling resources and left it at that. But the exchange left a strong impression on me.
It’s an incredibly bullish sign…
That may seem counterintuitive. But my friend’s interest in short selling is a big hint that the bottom might be in. And it’s not just him – we can see the same thing in several market signals today.
Let me explain…
At our annual conference last October, my boss Steve Sjuggerud noticed something was wrong…
Simply put, he couldn’t shake the crypto bulls.
They filled the conference audience. One drove him in a cab to the airport. Another sat beside him on the flight home.
Everywhere he went, folks were eager to chat about cryptocurrency. It seemed like everyone, everywhere, thought digital currencies could only go up.
Steve saw it for what it was: a mania. A week later in our True Wealth Systems newsletter, he wrote, “This kind of extreme optimism scares me… It tends to be a big, fat warning sign.”
He published that letter on November 4, 2021. Bitcoin peaked five days later. Today, it’s down 65% since that high.
Steve nailed that call because of sentiment. When everyone sees never-ending upside in an asset… and it becomes a conversation piece everywhere you go… we see a flashing sign to get out.
These signals work on the flip side, too. In a bear market, they can tell us when a buying opportunity is coming. When everyone you know has given up on rising prices – like my friend – it’s a sign there’s nobody left to sell.
This is called capitulation. And when we see it, we know that’s when the market can finally turn around.
This year’s bear market has been brutal. But the S&P 500 Index has staged a double-digit rally off its low this June. Take a look…
Stocks are making a comeback. But it seems like everyone has short selling and “head-fake rallies” on their minds. Today, negativity is running rampant…
Our friend Jason Goepfert of SentimenTrader.com can quantify it.
Recently, Jason scraped a news database compiled by Bloomberg to measure the market’s mood. He found that mentions of a “bear market rally” were at a decade high in June.
That’s a lot of skepticism… And it doesn’t end there.
The National Federation of Independent Business asks small-business owners whether they expect business conditions to improve over the next month. Based on this survey, small-business owners were at historic levels of pessimism in June.
The University of Michigan Surveys of Consumers also revealed dismal consumer sentiment in July. Respondents were near record bearishness about the economy, labor, and personal finances.
Fear and suspicion are everywhere. It’s the opposite of the crypto craze last November…
It may mean the worst is behind us.
I’m not recommending you buy stocks just yet. I’ll be waiting for a definite uptrend before I tell folks to go long…
But I’m getting more and more confident that this rebound in stocks is the real deal. The next bull market is closer than most folks think.
Good investing,
Sean Michael Cummings
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Source: Daily Wealth