We are in the middle of a giant short squeeze, and it is going to get even bigger.
The main reason is: the starting point of sentiment was zero. We were in the 0th percentile of sentiment. In the last 50 years of markets, it has never been worse—not even during the financial crisis. You may find that hard to believe if you lived through the financial crisis, but it is true.
This year, I’ve seen calls for the S&P 500 to go to 3,000, or 2,600, or 2,400, or zero. I’ve seen calls for interest rates to go to 9%. For a bond market crash. For a stock market crash. For EUR/USD to go to 0.90. For gold to go to $1,350. That the housing market would crash. That we would descend into another Great Depression. A few weeks ago, I sat in the office of a prominent Wall Street strategist, and he looked me in the eye and told me this would happen.
It did not happen.
The fundamental assumptions were wrong, but that’s not why I disagreed. I disagreed because bearish sentiment can only get too far in one direction before it snaps back.
I am a sentiment analyst. My analysis is not very useful at the 50-yard line. My analysis is only useful at the extremes—what we just experienced and what happened in early 2021. In about 21 months, we have gone from one extreme to another.