There’s a lot of fear-mongering out there right now. Every time I turn on the T.V or go to my favorite news publications, I hear or read something about Ukraine, Putin, or Inflation and how we’re on the brink of war or how these upcoming rate hikes are the end of this bull market. 

Well, the market internals are telling me something different.

Some of the biggest rallies come in bear markets, I saw this on numerous occasions in 2000 and 2001 as the tech bubble burst. As far as a lot of growth stocks are concerned, the crash has already happened, a lot of them are already down 50 to 60% or more. 

Not only that, but market sentiment is extremely bearish, with few bulls out there and put activity at extreme levels. 

When so many participants are positioned one way, often the opposite happens. That’s why I’m expecting the unexpected. I think the big boys are getting ready to collect some put premiums and send this market higher in the short-term, no matter how many times the Media tells me that war is coming or it’s the end of the equities world because a 50 point rate hike is coming!

We’re at an all-time high of net put value vs overall market cap as displayed in the chart below. 

That shows that a lot of people are buying puts right now. And people buying a lot of puts is typically wrong! When the market loads up on puts, it’s not usually the right bet. The chart above shows that when we’re at such an extreme level of put buying, that usually marks a bottom, and the market usually goes much higher. 

Right now we’re seeing an all-time high of the value of puts vs market cap, and the entire market in terms of participants is rarely ever correct. The market or the smart money usually does the meanest thing possible. 

On these 2 charts above, the blue line indicator shows the put-call ratio. Historically when the put-call ratio is at such extremes as it is now, the market tends to reverse. When the market loads up on puts, that typically puts in a bottom for a while! We see the same thing happen with calls. When the ratio is extremely low, that can put in a short-term top as the market overheats and then retraces to the mean. Put-call ratios such as this are good indicators of overall market sentiment.

Who wants to buy stocks right now? There’s a lot of chatter out there that no one should be buying stocks as the Fed is deleveraging, and raising rates. Foreign governments aren’t stepping in to buy stocks. Where’s the demand going to come from? Well, how about every large serious company in the world is buying their own stock back! Just look at the chart below:

Buybacks are at an all-time high, and that means a huge bid in the market for large-cap stocks with profits! Goldman Sachs says that there’s about $5.5 billion worth of daily demand right now! 

Now it might sound harsh, but I personally think if a company with significant profits CFO is not doing a stock buyback right now, they should be FIRED! Now maybe the market goes lower, but a CFO isn’t paid to time the market; their job is to go out there and do the stock repurchases.  

So we have a whole bunch of media fear out there, high put-call ratios, big corporate stock buybacks, and a lot of washed-out sentiment. To me, these are ripe conditions for a major bounce in the short term!