This Time, We’re Following the Crowd

This might be one of the most confusing years in history for the casual investor...

We've seen the economy move from hot to cool. President Donald Trump turned tariffs on and off, causing markets to crash... then soar. And it's not clear where we'll go from here.

Despite all of it, stocks are hitting new all-time highs... both in the U.S. and around the world.

It doesn't make a lot of sense, at a glance. But we know never to fight the trend.

That doesn't mean we should bury our heads in the sand. We want to watch closely for signs of overheating. And we've got one right now in the Nasdaq 100 Index...

Futures traders are more bullish on this tech-heavy index than ever. But according to history, that overheated sentiment isn't a reason to sell.

Instead, surprisingly, we should see more outperformance in the months ahead...

Don't Sell After This Bullish Signal

You and I could sit back and wonder how exactly we got here. It's easy to poke holes in any rally if you do that. But through all the analysis, you've got to remember one thing...

The "how" and "why" don't matter much to investors as a whole. The crowd only sees rising prices... and everyone around them getting rich.

That's how bull markets build momentum. The fear of missing out pushes more folks into the market, driving prices higher. And as stocks rise higher, it whips up euphoria.

This is happening in the futures markets today. We can see it in the Commitment of Traders ("COT") report for the Nasdaq 100...

The COT report shows what futures traders are doing with their money. These folks tend to get it wrong when they all agree... So, usually, we want to bet against them when they make extreme bets in either direction.

Recently, these folks have been more bullish on the Nasdaq 100 than we've seen since the data begins in 2010. Take a look...

The market crash earlier this year spooked futures traders. But bullishness soon roared back to a new high.

Normally, that would be a cause for concern. But this time, it isn't the sell signal you'd expect... It's a buy signal.

To see it, I looked at each new 52-week high in the index's COT report over the past 15 years. We've seen 12 cases before today. And the Nasdaq 100 performed darn well after those setups. Take a look...

The tech-heavy Nasdaq 100 has been an incredible winner over the past 15 years. It has soared 17.9% a year since 2010. And it even kept rising when futures traders were overly bullish...

Similar instances led to 4.3% gains in three months, 7.4% gains in six months, and 21.3% gains over a year. The short-term stretches were comparable to a buy-and-hold strategy... And the one-year period outperformed. Plus, the Nasdaq 100 was up 92% of the time a year later.

This doesn't guarantee that tech stocks will keep rising from here. But in a bull market, overheated sentiment is the norm. It's not always a reason to cut and run.

Of course, the market will eventually peak, just when investors think it can only go up. They'll be wrong... But they'll be right many times before that day comes.

That's why we always stick with the trend. Right now, the trend is up. And according to history, the most likely outcome is that stocks will keep soaring from here.

Good investing,

Brett Eversole