Day Traders Say They Told You So in Market Bending to Their Will

The caveats are too numerous to list. One trial isn’t definitive. Vaccines take months to distribute. However good the news is, stocks arepriced for better.

Don’t get ahead of yourself, warns Wall Street. But for the hordes of newbie investors who’ve been storming its gates all year, the skepticism doesn’t track.

“Today validates what the day traders have been doing,” said 28-year old Alex Castro from Miami, who says he pays his bills by buying and selling stocks. “This is what I live for.”

Eleven months into 2020, their confidence is boiling over. It’s also starting to look warranted. While professional investors spent the year predicting comeuppance and busying themselves with style and sector calls while a pandemic and a presidential election raged, a basket tracking the retail set’s favorite stocks has surged at five times the rate of the S&P 500.

It was happening again Monday. Amid the positive vaccine news, Carnival Corp., Norwegian Cruise Line Holdings and Royal Caribbean Cruises Ltd. — each among themost popular stocks on Robinhood — jumped at least 26%. The U.S. Global Jets ETF rose 16%, the most since March. So overwhelming was retail’s celebration Monday that brokerages from Charles Schwab Corp. and Vanguard Group Inc. to TD Ameritrade Holding Corp. faced technicaldifficulties.

Written off as a fad that would ebb when sports and college came back, retail day trading has just gotten bigger, accounting for afifth of equity trading in the U.S. In a market that may not “always go up” but has always managed to bounce back, the zero-commission crowd has a new mantra: I told you so.

“Retail investors have shown us that, a, they’ve got the intestinal fortitude to stick with it through all the volatility, and b, have been leaning in the right direction for the whole year,” said Arthur Hogan, chief market strategist at National Securities Corp. “Which is not largely true for most actively managed funds.”

Even critics who still see it ending in tears have to hand it to them for sticking it out. A Goldman Sachs Group Inc. basket of stocks favored by retail investors is up close to 60% in 2020, and has more than doubled since the March bottom. On Monday, the index rose for a sixth day straight, the longest winning streak since June, reaching a fresh record, after news that the Covid-19 vaccine Pfizer Inc. is developing prevented more than 90% of infections in a study of tens of thousands of volunteers.

“Really since early last week we’ve been straight up vertical,” said Matt Greben, a 27-year old day trader from Austin, Texas, who’s been trading options on the SPDR S&P 500 ETF Trust. “It’s a fun environment to be trading. You get a lucky break with the vaccine news, next thing you know it turns a small bet into a pretty decent-sized win.”

All year long, to the dismay of Wall Street, retail investors have played a risky game. They piled into airline and cruise operator stocks at the same time legendary investor Warren Buffett wasbailing. They’ve repeatedly involved themselves with stocks on the brink of or inbankruptcy, with Hertz Global Holdings Inc. the poster child. September marked a renaissance in options trading, with call buying among smaller traderssurging to records.

Even in recent bouts of market volatility, they’ve stuck to their guns, buying the dips. Last month, when the S&P 500 fell amid election nerves and fiscal stimulus doubts, E*Trade Financial’s clients used the downturn as an opportunity to scoop up riskier positions — including in the beaten-down energy sector — while rotating away from safer groups like consumer staples andutilities.

Energy was among the most popular sectors for E*Trade’s investors as they “continue to engage with the market and look for undervalued buying opportunities,” Chris Larkin, the firm’s managing director of trading and investment product, said late last week. On Monday, S&P 500 energy stocks surged 14%, the most since March.

At TD Ameritrade, clients kept their exposure to the markets last month at roughly the same level as in September — which was themost bullish in two years. According to JJ Kinahan, chief market strategist at TD Ameritrade, the brokerage’s millennial population scooped up shares of cruise lines, particularly Carnival.

“Overall our clients have been believers in the rebound of the travel industry as net buyers overall of airlines and cruise lines since March,” Kinahan said.

That also paid off. The S&P 500 rose 1.2%, paring a gain that took it to an intraday record. The Dow Jones Industrial Average surged almost 3%. More than five travel industry stocks surged 20% or more.

At the same time, trading volume exploded in the U.S. Global Jets ETF, which evolved into a retail favorite earlier this year. By the end of the day, a record 27.6 million shares of JETS had changed hands.

Options trades for the airline ETF were overwhelmingly bullish. On Monday alone, 163,500 call options on JETS traded, 13 times more than the number of puts and seven times average call volume over the last 20 days.

“The retail investor has probably been waiting for this longer than anybody,” said Christopher Grisanti, chief equity strategist at MAI Capital Management. “They’re excited, they’re euphoric.”

Still, Grisanti cautions against too much elation. While the Pfizer trial data is extraordinarily positive news, it will still take time for the vaccine to clear final hurdles and be distributed around the world. Meanwhile, Covid-19 cases just topped10 million in the U.S., New Jersey is ramping uprestrictions, and New York City Mayor Bill de Blasio said on Monday that the city is coming “dangerously close” to a second wave.

“There’s a long way to go between announcing new test results and feeling safe to get on an airline or cruise ship again,” Grisanti said as the Dow staged its best day since June. “I’m not sure how much I would chase it.”

— With assistance by Katherine Greifeld, and Casey Wagner

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