A New Band of Traders Is Flooding Into the Market

Dave Portnoy has become the poster child of the Melt Up investing mindset – as we covered yesterday. But it's not just him.

In fact, one brokerage has come to define this mentality. You probably already know it by name... I'm talking about Robinhood.

The brokerage made its name by starting the trend of zero-fee trading. And this year, it has shepherded in a new band of investors... the kind of folks that can propel the Melt Up in stocks to incredible heights.

Let me explain...

We've seen a rush of new traders in the market lately. The surge in visits to Robinhood's "Learn" page shows it. Daily visits to that section of its site soared 250% between January and June.

Sentiment data wizard Jason Goepfert (of SentimenTrader.com) has been tracking trading activity on Robinhood, too. The numbers have been staggering...

For example, just take the number of Robinhood traders holding leveraged broad market exchange-traded funds (ETFs). In December, the number was roughly 20,000. As of May, nearly 100,000 Robinhood users were holding leveraged ETFs.

That, my friends, is a stock market frenzy at work. This is the Melt Up in action.

If you want more proof that Robinhood has become ground zero for retail-investor mania, you just need to look at the complaints...

Generally speaking, the various U.S. consumer protection agencies don't get a whole lot of complaints about brokerage firms. The rules are pretty clear. And both sides are supposed to know how the game works. But over at Robinhood, things are a little different.

This year, newly minted investors have filed more than 400 complaints against the company – roughly four times the norm for its competitors. The word in government circles is that some regulators feel like they've become the company's customer-service department.

It's notoriously hard to get ahold of anyone at the company. That's part of how it has kept costs low.

And that, along with mountains of venture funding, is a big part of why Robinhood has helped usher in a new era of zero-fee trading.

This, as I'm sure you know, is a relatively new innovation. And boy oh boy, has it made it easier to get into the market.

In the past, trading fees could easily eat up a small investing account. Now, even major brokerages have slashed their fees since companies like Robinhood entered the scene. And that means the "dumb money" can gamble with smaller amounts without feeling like the house is taking too big a cut.

Only have $20 to invest? No problem. The trade is free.

Oh wait... That stock is $100 a share? Not to worry – Robinhood will sell you a fractional share you can afford.

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.

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.

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.

Simply put, there's a new band of traders in the market. They've bought into the Dave Portnoy view that the "market only goes up." And 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. And I want to make sure you get the most out of it that you can.

That's why I continue to pound the table on stocks. And if you aren't invested, you need to change that today.

Good investing,

Steve

P.S. This incredible shift in market sentiment is why I hosted a massive Melt Up event on Wednesday night. I want to share this message with as many folks as possible. And there's a lot more to the story than what I've explained today. So if you think you've missed the upside – or if you're scared of what's next after this year's wild ride – I urge you to watch the presentation now... You can do that by clicking here.

Further Reading

"Betting on stocks has nearly all of the components of sports betting built into it," Steve says. If you missed yesterday's essay about the mindset of people currently flooding into stocks, be sure to catch up right here: The Poster Child for This Stock Market Boom.

With all the volatility in the market and record-high stock prices, you might think that the safety of bonds is the best place for your money today. But you'd be dead wrong. The reality is, stocks are still the best place to make gains... Get the full story here: Even the Bond King Can't Escape Reality.

Market Notes
DEMAND KEEPS RISING FOR THIS WORKPLACE SOFTWARE

Today, we’re looking at a software company that keeps its customers coming back…

Software as a Service (“SaaS”) businesses make it easy to buy and use software. Under this structure, customers don’t own the software they use – they rent it. They can then access it anywhere, thanks to the cloud. This model is also great for SaaS businesses, as most sales are recurring. And with many folks still working from home, today’s SaaS company is getting plenty of business…

ServiceNow (NOW) is a $95 billion software provider. Its tools help customers automate their workflows and other processes. During the COVID-19 pandemic, ServiceNow’s digital workflows have become even more of a must-have. This has led to impressive sales growth – the company’s second-quarter subscription revenue totaled $1.01 billion, which is 30% year-over-year growth.

As you can see in the chart, NOW shares have steadily surged. They’re up more than 500% over the past five years, and they recently hit a new all-time high. With more folks working from home and companies moving toward digital workplaces, ServiceNow will likely continue to thrive…