Iran peace deal nears and scared traders are fleeing — contrarian bounce setup on the broad market
Reports suggest the U.S. and Iran are nearing a ceasefire extension, which is calming markets. At the same time, market-timers have been bailing on stocks at near-record pace — historically a signal that the market is about to go up, not down.
Idea
Two things are happening at once. First, the U.S. and Iran appear to be moving toward a ceasefire, which removes a major source of fear that has been hanging over the market. Stocks already reversed higher on the news. Second, nervous traders have been rushing to the exits at a near-unprecedented pace — and historically, when everyone is this scared, the market tends to go up. Add in the fact that Citadel's top strategist says the 'pain trade' is for stocks to keep climbing, and you have a setup where the crowd is positioned the wrong way while the fundamental backdrop is improving.