‘This Makes Me Nervous’: Trader Reveals Next Moves For Stocks, Bitcoin, Gold | Jason Shapiro

Key Concepts

• Hated Bull Market: A bull market that is met with widespread skepticism and bearish sentiment, despite its upward trend.
• Don't Fight the Tape: A trading principle advising against betting against the prevailing market trend.
• Crowded Sentiment: The collective opinion or positioning of market participants.
• Wisdom of Crowds: The idea that the collective judgment of a large group is often more accurate than that of any single individual.
• Prediction Markets: Platforms where individuals can trade on the outcomes of real-world events, serving as a gauge of collective sentiment.
• Arbitrage: The simultaneous purchase and sale of an asset in different markets to profit from a price difference.
• Bubble: A market phenomenon characterized by rapid asset price increases followed by a sharp decline.
• Intrinsic Value: The inherent worth of an asset, independent of its market price.
• Fiat Currency: Government-issued currency not backed by a physical commodity like gold.
• Dovish/Hawkish: Terms describing monetary policy stances. Dovish policies favor lower interest rates and easier credit, while hawkish policies favor higher interest rates and tighter credit.

Market Sentiment and Bull Market Dynamics

The current market is described as the "most hated bull market" due to persistent bearish sentiment despite its upward trajectory. Many market participants have been calling for a top or a crash for an extended period, often based on perceived bubbles (e.g., AI, Japanese carry trade, MSTR and Bitcoin). However, market momentum remains strong, with the S&P 500 above 6,800 points and Bitcoin exceeding $93,000 as of December 3rd. Gold and silver are also reaching unprecedented levels.

Jason Shapiro, founder of Crowded Market Report, argues that constantly trying to predict the market top is a futile exercise that leads to losses. He emphasizes that markets are in a bull market the majority of the time, driven by consistent passive flows from retirement accounts and ongoing liquidity injections from central banks and governments. Fighting these forces, often referred to as "fighting the Fed" or "fighting city hall," is a losing strategy.

Shapiro's personal nervousness stems from the perception that the market feels too supported, implying that any significant downturn would likely be met with further monetary stimulus, pushing prices back up. He acknowledges this thought process makes him uneasy, as he doesn't consider himself smarter than the collective market.

The Role of Prediction Markets

The discussion highlights prediction markets, specifically Koshi, as a novel tool for gauging crowded sentiment. These platforms allow users to trade on the outcomes of events, such as the S&P 500's closing price by the end of 2025 or potential Fed chair appointments.

Koshi S&P 500 Prediction Example: As of the discussion, Koshi participants showed a distribution of sentiment for the S&P 500 by the end of 2025:

• 17% chance for 6,600 to 6,800
• 40% chance for 6,800 to 7,000 (slightly higher than current levels)
• 30% chance for above 7,000 (bullish to super bullish)

Shapiro views these prediction markets as more than just polls because money is actively being put to work. He suggests potential arbitrage opportunities exist if spreads between these markets and traditional financial markets are wide enough, drawing parallels to early Bitcoin trading on different exchanges.

Prediction Markets and Election/Fed Chair Outcomes: Prediction markets have demonstrated a strong track record in forecasting real-world events, including:

• Presidential and mayoral election outcomes.
• Federal Reserve interest rate decisions.
• Potential Fed chair appointments (e.g., Kevin Hassett being predicted as the next Fed chair by some on the platform).

The accuracy of these markets is attributed to the "wisdom of crowds." Shapiro notes that these platforms offer a more direct way to gauge sentiment compared to traditional indirect indicators like options positioning and Commitment of Traders reports.

Comparison with CME FedWatch Tool: A comparison was made between Koshi's prediction for a Fed rate cut by December and the CME FedWatch tool.

• Koshi indicated an 82% chance of Kevin Hassett winning the Fed chair prediction.
• The CME FedWatch tool showed an 89% chance of a 25 basis point rate cut by December.
• Koshi's implied odds for a rate cut once Hassett is in office were estimated to be close to his win probability.

While both tools suggested an overwhelming chance of a rate cut, a slight divergence (4%) was noted, presenting a potential, albeit likely small, arbitrage opportunity if bid-ask spreads were favorable.

Bubble Discussions and Market Reactions

The conversation delves into the concept of market bubbles, particularly concerning tech stocks and AI. Shapiro dismisses the constant talk of "bubble, bubble, bubble" as unproductive. He argues that if one is convinced a bubble exists and will lead to an 80% crash, there's no rush to short near all-time highs. The principle of "don't fight the tape" is reiterated, emphasizing that waiting for the market to show weakness is a more prudent approach.

Historical Context (2008 Housing Bubble): Shapiro recounts his experience working at a hedge fund during the 2008 financial crisis. Macro strategists who were bearish on the housing bubble from 2005 lost significant money by shorting too early. By the time the crash occurred in 2008, many had been forced out of their positions due to losses, unable to capitalize on the downturn. Even Michael Burry, famously depicted in "The Big Short," had to endure three years of losses before his investors allowed him to maintain his short positions.

Nuances of "Bubbles": Shapiro points out that not all "bubbly" stocks behave the same. Many tech stocks have already experienced significant corrections (40-70%), suggesting that a "bubble pop" has already occurred in certain segments, even if high-profile names like Nvidia haven't fully capitulated. He notes that stocks benefiting from AI hype but lacking profitability have seen substantial declines.

Bitcoin and Gold Analysis

Bitcoin's Performance Post-ETF: The discussion examines Bitcoin's performance since the launch of the first spot Bitcoin ETF in January 2024. While Bitcoin has seen significant gains (around 120% since January 2024), it has underperformed the NASDAQ (up 57%) and gold (up 102%) in the same period, contrary to Shapiro's initial observation. This underperformance, despite the removal of "excess risk" associated with direct Bitcoin ownership, is puzzling to many. Shapiro acknowledges being corrected on this point and emphasizes the importance of verifying data.

Bitcoin as a Store of Value: Shapiro draws a parallel between gold and Bitcoin as stores of value. He questions the intrinsic value of gold, suggesting it's primarily a store of value that has held for millennia. He sees a similar potential for Bitcoin, despite its limited current utility. However, he also acknowledges the possibility of Bitcoin becoming worthless, citing the inherent uncertainty in financial markets and the potential for unforeseen events like government crackdowns.

Gold's Upward Trend: Gold's consistent upward trend since 2024 is attributed to ongoing central bank policies of money printing and a desire to move away from fiat currency. Shapiro believes that as long as this liquidity push continues, gold and silver are likely to continue their ascent.

Trading Strategies and Recommendations

Short Dollar, Long Yen/Canada: Shapiro identifies shorting the US dollar as a good idea. He also favors long positions in the Japanese Yen and Canadian Dollar, particularly Canada, as these currencies are heavily shorted and have started to show strength, suggesting potential short-covering rallies.

Commodities and Financials: He is looking at less conventional assets like sugar and cotton, finding less edge in the current financial markets for his trading style.

General Stock Market Approach: For the stock market, Shapiro advocates for erring on the long side due to its inherent upward drift. He criticizes the constant focus on picking market tops, deeming it a "silly exercise" that has proven detrimental to many. He suggests that only when the market stops acting well in relation to rate cuts and liquidity should one consider shifting to a bearish stance. He notes that recent market reactions to earnings and rate cut expectations demonstrate the continued influence of these factors.

Conclusion and Further Information

Shapiro concludes that the current market environment, despite being widely disliked, continues to be driven by strong liquidity and passive flows. He advises against fighting the tape and suggests focusing on directional trades with favorable risk-reward.

Jason Shapiro can be found at CrowdedMarketReport.com and on YouTube under "Crowded Market Report." The video also promotes Koshi, a regulated prediction market, offering a promo code "LIN" for a bonus on deposits.