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Pull quote. Pull quote. Pull quote. Pull quote. Pull quote. Pull quote. Pull quote. Pull quote. This might sound complicated. But the story it tells is simple... Small investors are making record bullish bets on stocks in the options markets. And the levels we’re seeing today are an order of magnitude higher than they’ve been at any time in history. Six months ago, investors wondered when the market would find a bottom. Now they’re wondering howmuch higher things could run. In other words, investors have bought into the Dave Portnoy view that “stocks only go up.” These folks will push the market higher than you could possibly imagine. If you think people are being irrational now... just wait. This is going to get a whole lot crazier before it ends. In 2019, there were less than 5 million of these contracts. Today, there are around 20 million. That’s a near fourfold increase in less than a year... And it’s the highest number of bullish contracts on record . Don’t be fooled into thinking these small trades don’t matter, though. These traders might not have much money on their own. But together, they can push the market around. For example, the trading volume of “call buys to open” from small traders in the options market has skyrocketed.
SURVIVING THE MELT DOWN Stocks bottomed just six months ago. Many folks thought that was the end of the Melt Up. It wasn’t, of course. The real thing had never arrived. Dave Portnoy hadn’t arrived. A lot has happened since the market bottom. The Federal Reserve has pumped trillions of dollars into the system. The federal government has spent trillions on fiscal stimulus. And investors have bid stocks to new highs in dramatic fashion. Six months ago, investors wondered when the market would find a bottom. Now they’re wondering how much higher things could run. My answer is that they could run far higher than most would believe . This is a Melt Up, after all. The hallmark signs are here. And that means prices can, and likely will, soar to stratospheric heights.
Simply put, you ain’t seen nothing yet . That reality creates its own set of the problems, though.
Because a Melt Down typically follows a Melt Up. And all the gains of the Melt Up go away. I am not kidding. The market gives back everything it gained during the Melt Up. All of it. I just want you to realize that investors are playing with fire here. Based on history, once the general public buys in like it has over the summer, our time is short. Typically, it means we’re down to the last 12 months. That means we could see a major market top and the start of a Melt Down by next summer – or sooner .
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October 2020
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