Several weeks ago I referenced data indicating throughout the year the retail investor was buying the shares institutional investors were selling. Data compiled by Charles Schwab is now indicating the retail investor is now selling. The statistics further indicate the pace of selling is accelerating with each market decline.
2018 has been an ugly year with sector/strategy declines ranging from 14% to 60%. Bloomberg writes because of the collapse of all trading strategies, this has been the hardest year since the early 1970s.
The vast majority of retail monies are invested in large cap passive index funds, perhaps one of the best performing sectors. Will this sector now collapse in similar nature as other sectors/strategies as retail investor sells?
In my view, generally speaking fear levels are not yet elevated. All must remember fear is more powerful than greed and a bottom does not typically occur until there is panic in the streets. As noted above, the retail investor was buying until late last week.
Many times I have commented an era ends when a sophisticated product is offered to the retail customer. The world’s first algorithmic fund available to the typical person, which commenced trading in May, lost 9.5% in October and is down almost another 8% for November.
If these returns are a proxy for other algorithmic models, this strategy utilizing momentum and very fast and active trading, may be numbered. As noted many times, algorithmic trading comprises about 60% of equity volume.
The markets are now entering into a period of seasonal strength. Will December follow the norm?
What will happen this week? The economic calendar is relatively light with the major event of the week is the release of Minutes from the recent FOMC meeting. At the end of the week is the G-20 meeting. How will China and the US posture going into the gathering?
Last night the foreign markets were up. London was up 0.90%, Paris up 0.99% and Frankfurt up 1.28%. China was down 0.14%, Japan up 0.76% and Hang Sang up 1.73%.
The Dow should open moderately higher on political optimism in both Italy and the UK. The markets are also vastly oversold. The 10-year is off 7/32 to yield 3.07%.
