2020 has been a remarkable year in financial markets and perhaps no one better characterizes the stock market in June 2020 better than Dave Portnoy of Barstool Sports.
Dave Portnoy, the self-proclaimed "world's greatest day trader"
During the COVID-19 lockdowns Portnoy began day trading live on his Twitter feed. With no live sports on TV and nothing to gamble on the natural transition was to take up day trading the stock market. Since Portnoy deposited US$3 million into an E-trade account and started day trading live in March he has been responsible for a massive contingent of new traders entering the stock market and trying their luck at day trading. Many of these novice traders have opened accounts with a commission-free brokerage platform called Robinhood.
More on the Robinhood phenomenon later in this blog but first I want to put some context to today's market.
The S&P 500 Volatility Index rose to ~85 in March when the COVID Crisis was at its peak level of fear. Since then the VIX has been gradually grinding lower, briefly falling below 25 on Friday morning:
VIX (Daily)
This is also the first time that the VIX has touched its 200-day moving average since February. Normally a VIX at 25 is unremarkable, however, considering where we've come from and what we are seeing in the world today it is in fact rather remarkable.
Stock options traders are aggressively betting that the trend of rising stock prices will continue. These options speculators are making record levels of bullish bets on stocks using derivatives called options which give the holder the option to purchase common stock at a specific price within a set time frame.
The massive amounts of call options being purchased have skewed the equity put/call ratio to record low levels in the last week:
The equity put/call ratio can be a strong indication of investor complacency when it falls below .50, just as it was an excellent indication of extreme fear and capitulation when it rose above 1.0 in March.
This market has humbled the likes of Buffett, Druckenmiller, and Icahn who have all been caught flat-footed by the rally since March 20th. Meanwhile, the Robinhood traders are raking in the gains with huge percentage gains in fan favorites like American Airlines (NYSE:AAL), Boeing (NYSE:BA), and Hertz (NYSE:HTZ).
Since legendary investor Carl Icahn (estimated net worth of US$15 billion) liquidated all of his Hertz shares the stock has surged more than 400%!
HTZ (Daily)
An entire new generation of stock market participants has been introduced to a market that has delivered years of gains in a matter of weeks. In fact, the more aggressive and seemingly reckless that investors have been since March 20th the bigger their returns have been. For some of these investors, their recent profits might turn out to be the most costly profits of their lives by giving them an unrealistic expectation of what to expect from the stock market in the future.
Can stocks like AAL and HTZ continue to deliver massive gains in a matter of days? My guess is probably not, but one thing is for sure, this market is unlike any we have seen before. Legends have been humbled, novices have made years worth of gains in a matter of weeks, and economic forecasters have once again proven that they know nothing.
Welcome to 2020, the year of the Robinhood traders.
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.
