Wall Street's big slide makes retail investors wary to 'buy the dip'
26/04/2022 21:31
By John McCrank
NEW YORK, April 26 (Reuters) - U.S. investors have
apparently been losing their appetite to "buy the dip" during
Wall Street's recent slide, further eroding support for a
market pummeled by worries over everything from tightening
monetary policy to the war in Ukraine.
Options trading data tracked by Vanda Research showed that
purchases of calls – typically employed to express a bullish
view of stock prices – have fallen close to year-to-date lows https://datawrapper.dwcdn.net/3PFS0/1
for the tech-heavy Invesco QQQ ETF QQQ.O , which tracks the
tech-heavy Nasdaq Composite Index.
"There are initial signs that retail might be getting a bit
tired of losing their money," said Lucas Mantle, a data science
analyst at Vanda Research. "It's been a messy couple of weeks."
Retail investors emerged as a powerful force as the S&P more
than doubled from its March 2020 lows following the COVID-19
pandemic. They helped fuel rallies in so-called meme stocks like
GameStop Corp GME.N and AMC Entertainment Holdings AMC.N
while also betting on shares of massive growth names such as
Tesla TSLA.O and Nvidia Corp NVDA.O .
Buying the dip had become "a generally foolproof strategy"
during that time, said Steve Sosnick, chief strategist at
brokerage Interactive Brokers. Broader market selloffs were
mitigated as investors raced to buy beaten up stocks.
A sustained reluctance to capitalize on stock declines now
could make this an even more bruising year for equities. The S&P
500, which fell 2.8% on Tuesday, is down 12.4% year-to-date.
Data from Interactive Brokers pointed to further signs
investors may be more hesitant to jump in during stock weakness,
with margin lending at the brokerage steadily declining this
year since peaking at the end of 2021, Sosnick said.
"All seemingly foolproof strategies run their course," he
said, adding that "many who were conditioned to reflexively buy
dips learned the hard way that not every dip was indeed a buying
opportunity."
As market volatility has increased this year and the buzz
around so-called meme stocks has eased, users at TradeZero have
been less active, said Dan Pipitone, chief executive officer of
the online brokerage.
"We went from a hyper-trading environment to now, more of a
buy-and hold approach, while also taking on some intra-day
trades ... on single names that may be less impacted by outside
forces and things that are unpredictable like the war in Ukraine
or the supply chain," he said.
(Reporting by John McCrank; Editing by David Gregorio)
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