It’s coming…

Dow 100,000 within a decade.

The headlines are filled with proof. Day traders are pouring into the markets.

Retail investors are flooding brokerages with calls as they set up new accounts.

And our old pals at the Federal Reserve are ringing the dinner bell and calling in the masses as the bank’s tally of funny money eclipses the $7 trillion mark.

You can see the effect on the options market…

I’ve made my living studying trading volume for the better part of two decades.

Price is important… but we know there’s usually a greater fool willing to pay a higher price.

What we want to know is this: How many fools are out there?

Take the housing bust, for example…

The data shows 1.1 million homes sold in 2003… 1.2 million sold in 2004… 1.3 million sold in 2005… and, oh my, back down to 1.2 million sold in 2006.

In 2007, just 776,000 homes traded hands.

But do you remember when prices peaked?

The textbooks would have you believe that prices should have reached their highs when sales volume was at its highest in 2005.

It’s supply and demand, right?

That’s hardly ever the case… especially when the Fed and its interest rate machine lurk nearby.

The truth is, home values didn’t reach their peak until the first quarter of 2007, nearly two years after volume hit its high.

In other words, tracking the number of folks buying and selling could have saved countless Americans countless dollars… and kept them in their homes.

Too Hot, Already?

As the stock market soars from its March lows, many folks are worried that the market may have gotten too hot, too quickly.

It’s a fair point.

But I caution you to focus not on price… but on volume.

On that front, my Dow 100,000 theory stands firm. Trading volume is surging and showing no signs of letting up.

I like to study option and derivative market volume. Those metrics give me a better view of who’s buying what and where they expect prices to head.

Right now, this vital piece of the market is red-hot.

The leading derivatives exchange, the CME Group, recently reported booming volume.

Daily volume on its stock indexes was up more than 80% in July. An average of 2 million option contracts changed hands each day last month.

And on August 11, the exchange reported record amounts of precious metals contracts changing hands.

The action has lots of folks worried about a bubble. But there’s no need to scratch our heads and wonder whether things are amiss.

They are. Most certainly.

Have you seen the headlines?!

But this is where it pays to focus on the indicators that matter most…

So Long, Fundamentals

Many investors are wondering whether traditional valuations have gotten too rich. After all, much of this recent run is purely speculative. Stock prices have soared, while earnings expectations have remained flat or fallen.

But with so much free money floating around ($7 trillion worth)… prices are distorted. All that money must go somewhere.

As long as the Fed is easing, traditional valuation metrics are mere relics of the good ol’ days.

What does it matter, for example, if a company’s return on equity is falling? The Fed will just loan it some more cheap cash.

That’s why I choose to focus on volume.

The Fed can’t print buy and sell orders… at least not yet.

Some folks are looking at the “speculative fervor” in the markets as a sign of froth – a sign that trouble is brewing.

They said the same thing in 2009… 2010… and 2011… all the way from one high to the other.

I say investors are not just smart if they join the action… they must join it. There’s easy money to be made.

Until volume wanes… the order is simple. Buy like hell.

If you feel like you’re always a day late and a dollar short, this is your chance. The market won’t wait around.

Be well,

— Andy

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Source: Wealthy Retirement