U.S. Stocks: Here’s Evidence of a “Nearly Unprecedented Acceptance of Risk”
Penny stocks fever has reached “the highest level since the first three months of 2000”
by Bob Stokes
Updated: March 18, 2021
Penny stocks tend to be highly illiquid. In other words, it's difficult to buy and sell them at favorable prices.
Even so, the lure of low-priced shares is hard for many market participants to resist, especially the novices -- like in 2000, when penny stock trading had reached a fever pitch.
Well, just about the same thing has been going on this year. Here's a Jan. 20 Reuters headline:
Analysis: A 'buy' is just a tap away: stock market dabblers drive trading boom into 2021
Our March Elliott Wave Financial Forecast offered its perspective with this chart and commentary:
Total Penny Stock Dollar Volume hit $72 billion in January, the highest level since the first three months of 2000, when the dot-com mania peaked. Other than those three months, when penny-stock dollar volume averaged a whopping $155 billion, the value of shares traded in January 2021 was the highest. This suggests a nearly unprecedented acceptance of risk... This chart shows the average daily trading volume in penny stocks.
In a Feb. 16 Bloomberg article headlined "Penny Stock Craze at Boiling Point...," a portfolio manager is quoted:
"It is very markedly similar to what we saw in 1999 with these day traders and novice investors coming in and treating the market as a get-rich-quick type of scheme, and of course that didn't end too well 20 years ago."
Indeed, Elliott wave analysis is revealing a lot about what's ahead for the stock market here in 2021.
As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:
[T]he Wave Principle often indicates in advance the relative magnitude of the next period of market progress or regress.
Every market participant -- whether novice or professional -- should know the Wave Principle's current market message.
Suffice it to say: it appears historic.
Follow the link below and you're on your way to getting the market insights you need.
Knowing the Dow Industrials’ "Wave Count" is Crucial: Here's Why:
That knowledge helps you anticipate big price moves in the direction of the main trend.
And -- just as important -- you won't be fooled by countertrend moves.
Remember, the stock market's price pattern unfolds simultaneously at all degrees of trend. Meaning -- hourly trends are part of daily trends, and in turn, these comprise the weekly trends which are part of the monthly trends and so on.
An investor needs to be familiar with all of them to make sense of what is going on with the stock market.
See what our Elliott wave analysts see by following the link below.
Read Chapter 1 of Prechter's Socionomic Theory of Finance.
An Elliott wave contracting triangle is a price pattern that often forms in a corrective wave 4 position -- meaning, a big move in wave 5 comes next. However, a variation of the triangle called a "running triangle" offers additional possibilities. Watch our European Short Term Update editor walk you through a chart of the pan-European index of 50 stocks and explain the implications.
We're not the first ones to notice a curious correlation between the timing of record highs in the stock market and proposals for building new skyscrapers. Watch our Financial Forecast co-editor discuss the latest proposal for an "upside-down" skyscraper in New York City.