Bulls are in complete control today … the danger of this lopsided positioning … do you get out of the market? … Luke Lango’s new short-term trading system According to analysts at Citi, the S&P’s positioning is “completely one-sided” in favor of the bulls. Citi notes that bullish positioning in the S&P has notched new records for four consecutive weeks. Below is a chart from Bloomberg dating to 2007. The red line shows the S&P 500’s price. The black line indicates the net futures positioning of asset managers. Today’s reading marks one of the highest on record. 
Importantly, except 2012, the other times that net long positioning reached such levels, the S&P suffered a sharp pullback shortly thereafter. Asset managers aren’t the only ones who are bullish As we’ve pointed out in prior Digests, the percentage of U.S. household wealth in stocks relative to other assets is near all-time highs today. To illustrate why this is a problem, we’ve referenced the following quote from Stéphane Renevier from Finimize in past Digests: A lot of things can influence short-term stock returns: interest rates, economic data, geopolitical stuff, investor sentiment – even weather. But for long-term returns, one factor rules them all: the proportion of assets that investors are parking in stocks. This ratio has proven to be the most reliable predictor of stock returns over a ten-year horizon, outshining even heavyweight factors like valuations. It says that when investors go big on stocks, their long-term returns tend to be below average… Investor over-allocation to stocks has been the most precise warning signal of lost decades. A rather concerning omen for 2025… | Recommended Link | | | | The markets have been climbing since the election, but new data suggests there could be several flash crashes in 2025. In fact, Luke Lango has compelling research that points to violent crashes becoming the norm moving forward. Here’s how to prepare… |  | | Right on cue, some research shops are slashing their forecasts for future market returns In September, JPMorgan published a report suggesting that forward returns over the next decade could come in at just half their long-term average. Here’s MarketWatch: The basis for their argument was mostly mathematical. Current stock-market valuations are high relative to history, largely due to the performance of a handful of megacap stocks like the members of the Magnificent Seven. Reams of historical data suggest that, over the long term, valuations should return to the mean, which should translate to lower stock-market returns in the years ahead. Meanwhile, earlier this week, the research shop Ned Davis pointed toward 2024’s 54 different all-time highs. While that’s been great news for investors, Ned Davis suggests that, historically, it’s not great for returns the year after such blowout performance. From Business Insider: Since 1928, in years when the S&P 500 has hit more than 35 record highs, the median gain for the benchmark index was just 5.8% the following year, below the long-running average of 8%, the firm said. In years when the S&P 500 hit at least 50 record highs, the median return for the benchmark index was -6% the following year. Now, one year provided an exception…and our hypergrowth expert Luke Lango believes it’s more appropriate as a comparison for today 1996. In that year, the S&P climbed 20% despite having hit 77 different record highs in 1995. Now, Luke isn’t saying there won’t be a correction eventually, but he challenges the idea that it’s coming next year: After the 1995/96 bull run, we get another three great years in 1997, 1998, and 1999 – but that led to the huge Dot Com Crash wherein stocks fell about 50% from 2000 to 2002. So, what does Luke see coming in 2025 then? It depends on a handful of variables, but here’s his bull case: While we think stocks have good upside prospects over the next 12-24 months, we think spectacular upside potential will depend on the path forward for inflation and interest rates. If inflation stays low and interest rates are able to keep moving lower, then valuation multiples on the S&P 500 will expand and power strong upside in stocks… After walking through the math of projections based on Trump tax cuts, the related earnings boost, and sentiment-related stock multiples, Luke concludes: If inflation stays low and interest rates keep falling, you could see stocks rally more than 30% in the next 2 years. Despite this potential outcome, Luke is no perma-bull. He’s realistic about the headwinds facing stocks in 2025: If inflation moves higher and interest rates stay high, then valuation multiples on the S&P 500 will have to compress and that will limit upside in stocks… You could see stocks push only marginally higher in the next 2 years. This leaves investors facing a challenging tradeoff… Do you stay in the market to benefit from bullish momentum, voting to emphasize “offense” and the possibility of a third consecutive year of blowout performance? If you choose this, you risk a guillotine-chop-style market correction that can derail or delay investment and/or financial goals. On the other hand, do you sell down your big winners, swallow the capital gains tax hit, and rotate into safer investments, voting to emphasize “defense,” protecting the gains you’ve generated? If you’re wrong and the market screams 30% higher over the next two years as Luke believes is possible, the missed gains could materially impact the timing of achieving your retirement timing and/or financial goals. Plus, that FOMO could be brutal. Not an easy choice to make. Given this challenge, I’ve been urging readers to consider adopting a “trading” mindset to today’s market. In other words, rather than adding to your buy-and-hold portfolio with new stocks bought at elevated valuations (or even buying more of your existing blue chips that are trading at lofty valuations), put your money into short-term trades. This way, you ride surging momentum while limiting your time in the market, therein reducing the risk of exposure to a sudden selloff. Now, while this makes sense theoretically, how do you really do it when rubber hits road? Luke has developed a new tool to help answer that question… The ultimate stock screening tool When it comes to “buying low and selling high,” what really matters? Is it fundamental strength? Think expanding profit margins and strong sales growth. Or maybe technical strength? Perhaps indicators and charts that suggest snowballing bullish momentum? Or is it sentiment? Regular Digest readers have seen me write “price is truth,” meaning that if bullish sentiment results in investors bidding up prices, what else is there, really? Each of these factors is important and plays a key role in a sustained bull run. That’s why Luke has created a comprehensive stock screening system called Auspex that combines all three. Luke’s Auspex system scans more than 10,000 stocks, looking for the select few that meet Luke’s strict standards for fundamental, technical, and sentiment performance. Next Wednesday, at 1 PM ET, Luke is holding a special event to detail exactly how he and his team engineered Auspex… the outperformance it’s been racking up since the summer… and why it could be the perfect answer to our earlier challenge of staying with bullish momentum versus getting out of the market to protect our gains. | Recommended Link | | | | After nearly a year of building and testing, Luke Lango is finally ready to reveal his powerful new stock screener on December 11. It’s called Auspex, and Luke will use it to identify what he calls “the best stocks at the best time”. Using this system, he has already handed some readers opportunities like 115% in under 60 days. Get the full details now. |  | | How Auspex’s sniper-like approach actually works The rigorous screening process produces only about 5-20 “buy” signals each month. Luke’s strategy has been to buy them all and then forget about them for the ensuing month. This means no trading in and out new stocks each week. No waiting for intra-day buy/sell notifications. Instead, you buy once at the beginning of the month then forget about it until about 30 days later. The following month, Auspex provides a new batch of short-term trade recommendations that have triggered its strict performance criteria. Perhaps one of the same stocks will have triggered a “buy” again. Perhaps the system will suggest you rotate your money into a new, stronger position. Whatever the guidance, the takeaway is the same: You keep your wealth aligned with the “best of the best” of fundamental, technical, and sentimental strength on a month-by-month basis. This increases the odds you’re invested in bullish stocks while reducing the odds that one of the positions rolls over in a significant way. After all, a one-month hold period provides less time for strength to erode. Luke has been using the Auspex system with his Inner Circle readers in real time and it’s beaten the market each month for the last five months. That includes November, when the S&P 500 rose 5.73% and the Dow jumped 7.54%, marking their best monthly performance of 2024. Meanwhile, the Nasdaq climbed 6.21% for its largest gain since May. The Auspex Equal Weight portfolio rose more than 8% over this period. We’ll be bringing you more on this over the coming days, but to sign up right now for next Wednesday’s event at 1 PM ET, click here. We’re anticipating one of the biggest turnouts of the year. Wrapping up, one knows where the market will go next year Historical data suggests we should expect muted returns. But current momentum points toward a continuation of outsized gains. As we see it, trading the market’s strongest stocks over shorter hold periods is one of our wisest choices for navigating this tension. It’s the old idea of “renting” the market, not “buying” it. Whatever approach is right for you, just be prepared for a 2025 that could be “up 20%” or “down 20%.” Have a good evening, Jeff Remsburg | 
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