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Investors Are Betting Big Time on a Fall in StocksBy
Thursday, October 8, 2015
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).
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...
Good investing,
Steve
Further Reading:
On Tuesday, Steve showed readers why U.S. house prices still have significant upside. "I have my money where my mouth is on this one," he says... "I have more of my personal financial assets in U.S. real estate than in any other category... by a wide margin... and that includes the stock market." Learn why right here.
"Nobody has been paying attention... but after falling an astonishing 25% since last summer, one hated currency is quietly – and finally – starting an uptrend," Steve says. It's a currency bet that nobody's talking about... and it ticks all three boxes in his ideal investment setup. Learn more here.
Market NotesA BIG WINNER IN THE BEVERAGE INDUSTRY One company is taking the soft-drink industry by storm right now... but there's a good chance you've never heard of it.
We're talking about holding company National Beverage (FIZZ). The company manufactures and distributes a variety of beverage products, including sparkling-water brand LaCroix, soda brands Faygo and Shasta, and a wide range of generic store brands.
Much of National Beverage's success has come from LaCroix, as sparkling water continues to be one of the highest-margin, fastest-growing segments in the beverage industry. Porter Stansberry and his team recommended shares in October 2014, noting "Not only is sparkling water where the margins are, it also happens to be the only water segment that is consistently growing. And that trend should continue as Americans gravitate toward healthier food and drink choices."
As you can see from the chart below, Porter's call from a year ago was spot on. Readers who took his advice are up nearly 70%. And the stock has been on fire lately... Shares are up more than 30% in the past two months alone and just struck a new all-time high.
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