Cailianshe April 27 (Editor Xiaoxiang) Various signs show that American retail investors seem to be no longer interested in the common "buy on dips" operations during the weakening of US stocks in the past few years, which is likely to cause the current market to further lose support. From the Federal Reserve's austerity policy to the geopolitical conflict between Russia and Ukraine, the stock market is currently facing a variety of negative factors.
Vanda Research tracked options trading data shows that call option purchases for Invesco QQQ ETF, which is mainly technology stock , have fallen to its lowest point so far this year. Invesco QQQ ETF tracks Nasdaq Composite Index , which is mainly based on technology stocks.
"Preliminary signs show retail investors may have been a little tired of losing money, and the situation has been very confusing in the weeks," said Lucas Mantle, a data science analyst at Vanda Research.
Retail investors who buy the bottom are "disappeared"
As S&P 500 index more than doubled from the initial low of the epidemic in March 2020, retail investors have become a powerful force in the US stock market in the past two years. Their crazy buying demand has greatly boosted the stock prices of so-called meme stocks such as GameStop and AMC Cinemas, and has also made big bets on growth companies such as Tesla and Nvidia. During that time, buying on dips has become "a universally reliable strategy." As investors compete to buy stocks that have suffered heavy losses, the overall market sell-off has also eased.
However, given that investors are no longer willing to take advantage of the stock market's downturn to buy at the bottom, it may cause the stock market to suffer a more severe blow to the rest of the year - the S&P 500 fell 2.8% on Tuesday, and has fallen by 12.4% so far this year.
Sosnick said Interactive Brokers data showed further signs that investors may be even less willing to enter the market during the current weak period of the stock market, and the company's margin use has steadily declined this year since its peak at the end of 2021.
"All seemingly foolproof strategies will come to an end," he said, adding, "many investors who are accustomed to conditioned dips have realized from the bitter lesson that not every dips is a good opportunity." Dan Pipitone, CEO of TradeZero, an online brokerage firm, said that as market volatility intensifies this year, the popularity of those meme stocks is also cooling down, and the company's customers have been indifferent.
It is worth mentioning that while retail investors are unwilling to buy on dips, every time the market rebounds, market participants will regard it as a good window for capital to escape. "It's like a bear market. The selling force is very strong during the rebound, and the rebound is getting smaller and smaller."
stock market decline is getting longer and longer
Bloomberg statistics show that the average decline of the S&P 500 will last for about two and a half days since this year, which is the longest year since 1974, and the return rate after a downward trading day is -0.2%, which is also the worst in the past 50 years.
For retail investors who are used to buying on dips, losses seem to be accumulating in the environment of "buying more and falling more". In the first four months of 2022, the S&P 500 has fallen to its lows in the year 17 times, the most in comparable periods since 1977. This is very different from what has been experienced in the past decade. Except for one of those years, the S&P 500 has rebounded on average in the trading day after the decline.
What disturbs market participants are also the disappearance of " Fed put options". Since the financial crisis, the Federal Reserve has taken action to rescue the market in almost every market dilemma, but now, their focus is obviously no longer on stabilizing the market, but is eager to suppress inflation .
Federal Chairman Powell has announced the rate hike in in March this year, which is the first time since at least 1994 that the Fed has started a rate hike cycle within a month after a massive sell-off in the stock market.As quantitative easing policy (QE) is gradually replaced by balance sheet reduction quantitative tightening policy (QT), the Federal Reserve has abandoned its role as an "allier" in the stock market bull market, and instead becomes the latter's biggest threat.
All of this has led to market turmoil this year. Chris Verrone, partner and head of technical research at Strategas Securities, said that since 2022, the daily volatility of the S&P 500 has accounted for about 86%. This is the highest proportion since 2009, marking that the relatively calm market conditions of the Fed's QE era over the past decade have passed.
This data suggests that more turmoil awaits investors as the Federal Reserve moves from loose monetary policy to controlling the highest inflation in decades.
Peter Chatwell, head of asset strategy at Ruisui Duo, said, "There is no doubt that the market atmosphere has changed. In the current stock market, selling at highs is more profitable. We expect the market decline to continue until the second quarter. Only when inflation risks show substantial signs of peaking will mild risk sentiment recover in the second quarter."
Original title: Who dares to take the flying knife? US stocks "the more you buy, the more you fall", retail investors have given up "buying the bottom"
Source: Cailianshe
