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Investing , Stocks Mania of the Late 1990s: “Thinking of You”

Another measure of “speculative fervor” hits record – and it rings a bell

by Bob Stokes
Updated: February 02, 2021

Investors who've been around for a while recall the speculative fervor that attended mania in 1999-2000.

One way speculators expressed their highly bullish sentiment back then was to play the highly risky options market.

As you probably know, options allow speculators to employ leverage for relatively little money. However, the downside risk is substantial.

Well, options trading is back in a big way.

This is from a Jan. 30 Marketwatch article with the subheadline:

Individual investors pile into out-of-the-money calls seeking "lottery"-type wins

The frenzy... stirs memories of the 1990s dot-com boom, when a surge in day trading contributed to the inflation of an epic market bubble.

Our January 2021 Elliott Wave Financial Forecast provided its own perspective with this chart and commentary:


As shown on the bottom two graphs on this chart, by the middle of 2020, call buying to open trades by both large and small traders quickly shot to its highest levels in 20 years. The speculative fervor to bet on rising stock prices mostly remained there for the balance of the year. In a December surge, the percentage of large trader option volume that went to buying calls matched the March 2000 peak, rising to 43% for three consecutive weeks. The week of December 11, small trader call buying jumped to 54%, a new record high. On a five-week basis, both groups set records in December, 42% for large traders, 52% for small.

You may be interested in knowing where some of the small traders are getting the funds to participate in the options market.

In a Jan. 28 Bloomberg interview, an RBC Capital Markets" strategist said:

In 2020 fiscal stimulus checks led to greater retail options activity.

When retail investors are that eager to speculate, history shows that it's time to prepare your portfolio with the help of Elliott wave analysis.

Get the insights you need by following the link below.

The Key Word to Describe Today's Bullishness? “Relentless”

Our January Elliott Wave Financial Forecast says the current investment crowd's bullishness stands out for its "relentlessness."

This manifests in manifold ways.

One of them is the day-trading frenzy. As the January EWFF says:

The day-trading boom is another speculative outpouring that continues to expand. EWFF observed an influx of "amateur" investors in February 2020, but the day-trading explosion really took off in April of last year when Robinhood trading accounts surged. EWFF noted that Google searches on "how to buy stocks" more than tripled from their prior record in January 2018.

Remember the "get rich quick" mentality of the 1990s?

We know how that ended.

Learn why investors need to prepare for another financially violent conclusion.

Follow the link below to get the insights that will help you to position your portfolio properly.

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