Sentiment Suggests People Are Angry...Good.

1.) SENTIMENT – According to sentiment surveys, people are unhappy. From an investor standpoint… that’s good. Everyone keeps trying to compare this environment to 1999, which is sort of an easy reference point. Like then, today we have huge companies with brand new technology, while their stocks are at all-time highs. Sounds familiar. But that’s where the similarities end. Back in March of 2000, right at the peak of the dot-com bubble, consumer sentiment was at the highest level ever recorded. People felt great. Today, it’s the complete opposite as sentiment just hit the lowest level in history. This survey goes back 75 years and today represents the most pessimistic reading ever recorded. At the same time, stocks are hitting highs. The real risk isn’t when people are angry and underexposed (like now). The risk is when they’re all in, feeling great, and convinced it only goes up (like in 1999).

2.) SHORTS – On top of the sentiment data I’ve shown you above, let’s see how people are actually positioned. What they say in a survey is valuable, but what they are doing with their money speaks volumes. Right now, median short interest across Russell 3000 stocks (a very broad universe of stocks) is sitting at the highest level in 15 years. Short sellers in the market are guaranteed buyers at some point. So when we have short interest this high, it just creates an extra layer of potential buyers. In addition, we also have the good ‘ole magazine cover phenomenon. This one from Barron’s is just one recent example. The Economist and Newsweek continue to try and scare you the same way. Fear sells, and right now it’s everywhere… as easily seen in the Sentiment chart above.

3.) DOW – The Dow Theory was never about Industrial and Transport Indexes. It was about tracking how the economy actually works. A hundred years ago, that meant physical goods. Companies made things, and those goods had to be shipped. That's why industrials and transports mattered… and they still do. But there’s an update that is needed for today’s economy. Today, you tend to see economic strength show up in semiconductors. Today they sit at the center of how most businesses operate. When companies are building and expanding, it shows up there. Semis are at highs, and that’s great, but like the “old” Dow Theory where Transports confirmed Industrials and economic health, today we need a confirmation for the Semiconductors. The S&P 500 gives you the other side of it. While not every company makes chips, most companies rely on them to do business. Whether it's software, logistics, payments, or manufacturing, it all runs on the same underlying technology. So when strength starts to show up in the S&P 500 as well, it tells you the move isn't isolated. It's spreading. One move on its own doesn't tell you much. It can stall, reverse, or just go nowhere. But when you start to see that same strength show up in other parts of the market, that's when it becomes something you can trust.