Sabtu, 17 Mei 2025

Extreme Fear = Historic Rally?

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Is Extreme Fear Setting Up a Historic Rally?

JC Parets, CMT, Founder, TrendLabs

JC Parets, CMT

Sentiment is exponentially worse than it was back in 2016.

So, what does that mean for investors?

The upside is even greater!

It's deja vu all over again, to quote the great philosopher Yogi Berra.

We've seen this before...

Chart: Trump Squeeze
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Back in the fall of 2016, sentiment was terrible.

So many people just assumed that a Trump presidency would lead to a stock market collapse and volatility spike.

Instead, 2017 was one of the greatest and least volatile years for the stock market in American History.

And it's playing out in a similar way this time.

What's the Trump Trade?

We look for divergences between what is actually happening and what investors think is happening.

The discrepancy between the two is currently at one of the most extreme levels in stock market history.

The American Association of Individual Investors (AAII) just reported this week that over half their members are bearish U.S. stocks over the next six months.

Chart: What Direction Do All Members Feel The Stock Market Will Be In The Next 6 Months?
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This is now the 11th straight week where more than half their members are bearish.

That's never happened ever in history, and this data goes all the way back to the 1980s.

You can track the weekly reports of individual investor sentiment here at AAII.

Keep in mind that during Trump Squeeze 1.0 you had epic returns for the Nasdaq-100, the S&P 500 and the Dow Jones Industrial Average.

Those indexes rallied 46%, 33%, and 32%, respectively.

But, for the most part, the United States underperformed during that cycle. It was the international markets that really shined.

And the U.S. Dollar was falling.

Sound familiar?

I think Trump Squeeze 2.0 has already begun.

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You're seeing the rotation back into small-caps, and now even the large-cap U.S. growth is making a comeback.

Technology was the best performing sector last month.

And, when you look at the stocks that the Trump haters dislike the most - names such as Tesla (TSLA), for example - are ripping higher, up over 34% during the past month.

Remember that our TSLA call options literally doubled less than 10 hours after we put them on.

And don't forget what helped inspire our entry point and why we're making so much money in the electric vehicle manufacturer run by Elon Musk.

"Tampon Tim," as he's known in many circles, justifiably or not, is a former vice-presidential candidate who regularly brags about how broke he is and how he doesn't own any stocks.

But he took the stage at a rally to describe how giddy it makes him to download a stock market app and watch the price of Tesla stock fall.

If that creepy dude giggling on stage about things he can't afford isn't a sign of a bottom, then you're just not paying attention.

It was crystal clear. We're profiting tremendously for embracing the sentiment.

And it's a great reminder to us all to pay attention. Always pay attention.

The signs are there, regardless of your political affiliation.

Keep in mind, this isn't about politics. It doesn't matter who you voted for or how you feel about the current administration.

It's only about making money and taking advantage of the vulnerabilities in the marketplace caused by irrational human behavior.

And humans tend to act even more irrational than usual when politics are involved.

We know this. We have the data.

So, we try our best to profit from it when we can.

What's the Trump Squeeze 2.0 trade?

I believe it's more of the same.

I still think Tesla has the potential to be the most valuable company in the world during the current administration.

Crypto is ripping. The communists holding back America's position in the fast-growing crypto market have been fired.

A crypto-friendly administration has taken over and you're seeing that reflected in the price action.

Here is the total crypto market capitalization pushing up against the highest levels ever:

Chart: Total Crypto Market-cap
View larger image
 

"Total crypto market cap" is a calculation of the value of every crypto currency in the world added up.

As you can see on the right, Bitcoin (BTC) just crossed back above the $2 trillion market.

Ethereum (ETH) is pushing $300 billion, and some of the larger altcoins are increasing in value by the day.

Right now the total crypto market cap is over $3.2 trillion.

For perspective, it peaked at $3 trillion back in late 2021.

During the prior cycle, total crypto market cap peaked at just over $700 billion in January 2018.

If this cycle does what it did the last cycle, you're looking at a total crypto market cap north of $10 trillion.

At the current rate, that would put Bitcoin somewhere in the neighborhood of $6 trillion, more than a 3X of current levels.

That's a $300,000 price tag on a single Bitcoin, this cycle.

And that's putting it conservatively.

Look out.

This Trump Squeeze 2.0 is just getting started.

This could be one for the record books.

Stay sharp,

JC Parets

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