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As stocks rebounded in one week, the retail trader snapped up their most-loved, cult stocks. The action hints at which names will lead the way if the market manages to break out to new highs and the six-year bull market resumes.
"They were saying, 'this is overdone' and 'there's value out here,'" said JJ Kinahan, TD Ameritrade's chief strategist. "They think these stocks were more of a victim of the overall market and that these are not bad stocks."
The S&P 500 started March in the middle of a pullback from a record high hit in late February. The index fell almost 4 percent during that brief selloff before reversing course last Thursday, rallying 3 percent through Wednesday. The market got help from a dovish Federal Reserve statement Wednesday which played right into the retail trader's hands by sounding the "all clear" on buying some of these riskier stocks.
By no coincidence, those four cult stocks outperformed the market Thursday morning as retail traders bid them up. Meanwhile, the S&P 500 retreated. Over the last one week, Facebook is up 5 percent. Apple, GoPro and Twitter are up 2 percent apiece. All are doing better than the market in one week.
Also interesting is that options activity in Facebook and Twitter is much higher than usual, according to Kinahan. These investors likely want to participate in the upside of these names, but at a lower cost than buying the stock outright.
Kinahan also noted that because of a drop in implied volatility, the price of these options declined, offering attractive value to those who want to ride these names higher.
The data from TD Ameritrade, based on real action in its client portfolios, contrasts with a widely followed retail investor survey. The American Association of Individual Investors polls its members weekly and found that 32 percent of small investors were bearish as of the end of last week. Only 27 percent are bullish and 41 percent are neutral.
So while small investors may be talking the talk about being hesitant on the market, they are walking the walk with the purchase of high beta stocks.
One cult stock that is not getting the retail love is Alibaba. Kinahan said investors have actively sold the stock in the last week on concern a large number of shares that were in so-called lockup after Alibaba's IPO last year came on the market Wednesday. There are more lockups expiring ahead as well.