Retail Traders Storm Back As Key Reversals Spike

Retail rebound

With a combination of no commissions and a runaway market, retail traders haven’t been this active in 15 years. Brokerages with a heavy retail customer base have seen trading activity skyrocket relative to overall market volume.

Daily average revenue trades (DARTs)

The introduction of commission-free trading throws a big wrench into this data, because when something is free, people use more of it, and it will become more difficult for the brokers to define what exactly it means for a trade to generate revenue. But activity spikes like this have not been positive for stocks.

Key reversals

Last week, there was a jump in the number of stocks within the S&P 500 that reached a 52-week high then reversed to close below the prior week’s close. More than 10% of stocks triggered one of these buying climaxes, the 2nd-most in almost 2 years.

S&P 500 buying climaxes key reversals

Over the past 25 years, any week with more than 50 buying climaxes saw an annualized forward return of -3.3% in the S&P 500, compared to nearly +23% after a week with no climaxes.

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The post titled Retail Traders Storm Back As Key Reversals Spike was originally published as on on 2020-01-28.

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