Stocks: What to Make of the Day-Trading Frenzy
“Meet the 2020 version” of the wild day-traders of the 1990s
by Bob Stokes
Updated: May 27, 2020
Day trading -- it's back.
As you'll probably recall, day trading became so popular during the late 1990s that some market participants were selling their homes to raise the funds to participate.
It didn't end well. After peaking in March 2000, the NASDAQ went on to lose 78% of its value.
Yet, even after the dot.com bust, day trading never went away. There was a marked resurgence in the months leading up to the 2007 stock market top. But, even then, day trading activity was not as intense as it was around the time of the dot.com bubble.
However, the wild speculation that was taking place around the time of the February 2020 top did call to mind the 1990s.
Our March Elliott Wave Financial Forecast showed this chart and said:
The middle graph in this chart shows that investors' amazing willingness to bet on stocks with borrowed money lasted right through the top of the bull market... The bottom graph shows when SentimenTrader.com's Options Speculation Index jumped to 1.5, its highest total in 20 years... For anyone who wondered about where the small day traders who made the 1990s so wild went, meet the 2020 version.
Did the February / March market meltdown make the day traders go away?
Here's a May 22 excerpt from Barron's:
Day Trading Has Replaced Sports Betting as America's Pastime.
Day trading among individual investors has taken off.
A full-blown retail mania has taken hold in buying and selling small lots of stocks and options... Many Americans used their coronavirus stimulus checks to trade stocks.
So, no, day traders are as hopeful as ever.
Even a market meltdown that saw the S&P 500 drop nearly 35% in just a month or so was not enough to scare them off.
This speaks to the extreme level of optimism that is now in play and correlates with the stock market's Elliott wave pattern.
Now learn what our Elliott wave experts expect next.
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Could Stock Market Investors Be a Bit “Off Their Rocker”?
That phrase may seem impolite, yet large groups of investors can indeed be what is appropriately called “nonrational.”
The May Elliott Wave Theorist takes it from here:
The theme of The Socionomic Theory of Finance is that financial pricing is nonrational. It is not 100% rational, as the efficient market hypothesis would have it; it is not partially rational and partly emotional, as Keynesian economists would have it; it is all nonrational.
If you considered that thesis too radical, just witness the past month and a half of recovery in the stock market. A deadly virus is running rampant in the world. The global economy is contracting at a record rate. The U.S. economy is hemorrhaging jobs at a breakneck pace. Debts are going unpaid. Banks are facing failure. Governments are blundering their way through the pandemic, banning the most innocuous of activities while allowing dangerous ones to continue. Yet investors are bidding up stocks with a fervor that in some ways is unprecedented.
Why have investors been bidding up stocks? [emphasis added]
The May Theorist goes on to answer that question.
The Theorist is part of Elliott Wave International’s flagship investor package and you can gain instant access without any obligation for 30 days.
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