One Side Of The Market Is Getting Crowded...It's Probably Not What You Think

1.) CONTRARIAN – In market space, it often pays to be contrarian (think opposite) from the herd. We have a saying around our offices – “Beware of the herd at extremes!” So, is there anything at an extreme now? Sure! Nasdaq-100 futures positioning. Asset managers and leveraged funds remain near-record net short Nasdaq-100 futures. The latest CFTC report shows a combined −$20.2B net position, the second most negative reading in the available history, just shy of last week's −$21.0B record. The side of the boat that is betting markets drop is very crowded. I’d not get in on that side of the boat. You can see below that when futures positioning gets heavy short (betting markets fall) like this, markets tend to move higher. Remember, a short seller at some point MUST buy to cover or close their position or risk heavy losses if markets keep moving higher against them. And right now, the data shows there’s a lot of potential buying in the system.

2.) INSIDERS – I’ve commented in the past on how insiders (officers and directors) of publicly traded companies have lots of reasons to sell their stock. But they only have one reason to buy. This is why we don’t pay much attention to insider activity on the sell side, but we do pay attention on the buy side. So right now, as noted above, traders are record short while insiders are near a 15-year high in buying activity. Who do you think knows more about their companies…traders? Or the ones running their companies? I know…easy answer.

3.) LOWS – A couple of hallmarks of a healthy bull market are a “quietness” within markets... the strongest markets are not exciting... and large amounts of stocks doing well. And right now, we have both. The general theme persists regardless of index - hardly any stocks are moving materially lower. In fact, for the S&P 500, 400, 600, and 1500, the number of stocks at a 1-month low has been steadily declining as the market moves higher. A market that was getting itself into trouble would be indexes moving higher and higher with more and more companies hitting new lows. As you can see below, new lows are getting... well... lower! So for now, fade the noise of the day about war, oil, inflation, the Fed, rate hike possibilities, and long-term interest rates. Yes, rates are going higher right now... which is just the market’s way of saying “we see growth, we do not see recession.” If long-term rates were dropping fast, it would be the market saying it sees recession incoming. And right now, that’s not the message it’s sending.