Ellen Hazen, chief market strategist and portfolio manager at F.L. Putnam, agrees, saying it’s too early to determine what the latest retail action means for the market.
“It used to be the case that retail investors were considered a contrary indicator because they were considered to always be late to the party. But I don’t know that that’s true any longer,” she said. “The jury is out as to whether or not the reliability of that as a contrary indicator is as high as it used to be.”
There are also signs in the options market that retail interest is cooling. Once a big fan of using bullish options to chase equity gains and make quick money, day traders have seen their demand for calls dwindling. Last week, small-lot buying of call contracts made up the lowest portion of total call volume since March 2020, Options Clearing Corp. data compiled by Susquehanna International Group show.
While amateurs were exiting, hedge funds tracked by BofA reined in their selling. Their share disposals totaled less than $400 million last week, down from $2.4 billion from the previous week.
Meanwhile, hedge fund clients at Morgan Stanley and JPMorgan were tiptoeing back after frenetically slashing their equity exposure. Last week, they trimmed short positions against stocks while adding longs, separate data from their prime brokers show.
“Unfortunately, the retail client is often wrong and moving the opposite direction of institutional cash,” said Victoria Greene, founding partner and chief investment officer at G Squared Private Wealth. “Retail selling may be signaling we saw at least a short-term bottom and support in this turnaround.”
--With assistance from Melissa Karsh.
This article was provided by Bloomberg News.