You probably think I'm crazy to be talking about a stock-buying frenzy...
After the last couple of weeks, when coronavirus fear gripped markets and caused a quick stock correction, a buying frenzy is the last thing you'd expect.
It's true, though. And it's been caused by something that few people are talking about.
This is important because, while coronavirus is scary now, it likely won't last forever. Stocks will rebound. And we want to be ready for the next leg of the Melt Up.
Today, I'll share what I believe is most important today. It's a little-known trend that should help propel the Melt Up to new heights...
No one's talking about this. But the habits of investors are changing.
Simply put, the trading activity of individual investors has picked up – big time. And it's all started in the past few months...
The chart below shows what I mean. It's the daily trading activity (the average number of trades per day) of individual investors using E-Trade. The latest numbers are crazy. Take a look...
You can see that daily trading activity among individual investors has absolutely soared since October. This tells me that the animal spirits that have been lying dormant for 20 years are awakening again.
Or in other words, excitement is building in the market... to the point where emotion will soon take over rationality.
This idea is on hold, of course, until the coronavirus fears calm down. But I expect it to pick back up in the coming months.
There's one fascinating thing about the timing of all this...
E-Trade changed its business model to "free" trades back in October. Customers could buy and sell stocks without paying a fee for every transaction. As you can see in the chart, the timing of the move to zero commissions roughly coincides with the wild explosion in trading.
And E-Trade isn't the only online brokerage offering commission-free trading now. TD Ameritrade, Charles Schwab, and Interactive Brokers all cut their commissions to zero around the same time.
As soon as "free" trading arrived, trading activity soared. It doesn't seem like a coincidence.
But here's the most interesting part...
While the number of daily trades has soared, the actual number of new accounts opened at E-Trade hasn't soared. The message to me is that existing traders are becoming active again. But we haven't seen the wild influx of new customers – yet.
I strongly believe that will happen before the Melt Up is over.
Commission-free trading is also attracting young people – and so is the ability to buy "fractional" shares, which online broker Robinhood offers. Instead of paying more than $2,000 for a single share of Amazon, you can pay less to own part of a share... while still getting in on the upside.
All this is opening up the market to young investors. They're starting to speculate, according to Robinhood. Young folks are buying shares of companies they know and use – including Snap (social media), GoPro (portable cameras), Fitbit (fitness trackers), and a few specific cannabis stocks.
But importantly, they're not "all in" on stocks – yet.
Typically, for a truly massive Melt Up, you need an entirely new generation of, well, suckers. By that, I mean people who haven't experienced a crushing investing downturn in their lifetimes. We need folks to believe that their beloved asset can never go down in price.
That isn't happening yet. The recent coronavirus sell-off proves it. But it could happen soon.
It's hard to believe. But we are 20 years removed from the last great Melt Up... And even the bust of 2008 is a dozen years old now. So most people have either forgotten or have never experienced a major bust.
This simple fact, combined with the free-trading boom, should help fuel more buying in the coming months. And it'll likely be what causes the next big rally in the Melt Up.
Good investing,
Steve
P.S. If you're still worried about the markets – I get it. But you don't want to miss out on the upside ahead. This is the perfect time to use a strategy I've recommended for years... which I recently covered in a short interview. I also explained exactly how I'm planning to get out before the "Melt Down." You can check it out right here.
Further Reading
"The Melt Up can't end until this key measure changes," Chris Igou says. It's a huge tailwind at the heart of today's bull market. And it means we'll likely see more upside ahead... Learn more here.
"Imagine living in a world where you make investment decisions based only on headlines," Vic Lederman writes. We've had plenty of reasons to panic in recent years. But history tells us it pays to ignore the noise... Get the full story here.
A fall from recent highs is one thing. But for one country outside the U.S., the recent drop wasn't just a pullback...
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Novo Nordisk (NVO)... drugmaker
Inovio Pharmaceuticals (INO)... drugmaker
Franco-Nevada (FNV)... gold royalties
Newmont (NEM)... gold
NEW LOWS OF NOTE LAST WEEK
Macy's (M)... dying retailer
Aurora Cannabis (ACB)... cannabis
Anheuser-Busch InBev (BUD)... beer
Hertz Global (HTZ)... rental cars
Advance Auto Parts (AAP)... auto parts
Spirit AeroSystems (SPR)... Boeing supplier
Under Armour (UAA)... athletic apparel
Booking Holdings (BKNG)... travel-booking websites
International Paper (IP)... paper
