Trader Talk

Retail investors buying beaten-up stocks make for some bizarre trading days

Key Points
  • Interest in stay-at-home stocks have reached new heights in the last few days, fueled in part by hopes for a dramatic rebound in the economy.
  • Retail speculators seem to be very active in stocks beaten up in the coronavirus shutdown.
  • People at home during the pandemic have had much more time to educate themselves about the market and trade.
In this photo illustration a Robinhood Markets logo seen displayed on a smartphone.
Rafael Henrique | SOPA Images | LightRocket via Getty Images

The interest in beaten-up stocks in energy, travel and leisure is taking some, well, bizarre turns.

I've written recently about the importance of retail traders in the recent rally, but the interest among the stay-at-home crowd and trading in those names seems to have reached new heights in the last few days, fueled in part by hopes for a dramatic rebound in the economy.

American Airlines goes from $11 to $22 to $18.55--in three days, on heavy volume.

Delta goes from $27 to $36 to $34.17 in five days, also on heavy volume

Hertz goes from $0.88 to $6.00 to $4.18 in four days--on volume four times normal.

Carnival Corp. goes from $17 to $25 to $23.04, also in three days.

While much of this can simply be attributed to the reopening story going well, it's not lost that retail speculators seem to be very active in these names. The top 12 most popular stocks owned by Robinhood investors include three airlines —American, Delta, United — and two cruise companies (Carnival and Norwegian), and Microsoft and Apple.

News Update – Market Close
News Update – Market Close

Trying to find a bottom in energy stocks has also been a fixation for retail investors for months.

But even by these standards, the trading in Chesapeake Energy has been bizarre. The stock closed at $14.05 on Thursday, then ended trading on Monday at $69.92, a move of nearly 400% in two days, on no news. Other beaten up energy names also rallied.

Before the open today, a Bloomberg story, noting the heavy debt levels of the company, said that the company was preparing for a bankruptcy filing. With the stock trading as low as $37, the NYSE halted trading in the stock prior to the open.

While the halt was labelled as "news dissemination," the company does not appear to have made any statements. The stock was reopened at 12:37 p.m. ET, and was halted numerous times throughout the day for volatility before closing at $23.75 on heavy volume.

An NYSE official declined to comment on the NYSE's action, or to confirm that discussions had taken place with Chesapeake about the volatile trading. Chesapeake also declined to comment.

While unusual, the NYSE's "Listed Company Manual" permits the exchange to halt trading in a stock when officials believe it is necessary to ask for more information on material news, the issuer's compliance with exchange continued listing requirements, or any other information necessary to protect investors.

It all caps a bizarre few days of interest in these volatile stocks.

JJ Kinahan, who has watched retail trading for many years from his perch as chief market strategist at TD Ameritrade,  said it was no surprise that retail investors have been more actively trading.

"People are at home and have had plenty of time to educate themselves about trading," he said, noting that viewing of Ameritrade's educational material went up three times normal viewing in March and April.

Why the involvement in beaten-up sectors? "Some of the reason is that they are just affordable — not cheap, but people who don't have a lot of money can afford them," he said. But the heavy retail involvement in airlines made sense on a more fundamental level: "Remember the Fed came in and backstopped them, and investors have taken advantage of that."

Kinahan is amused at all the attention the "average trader" has been getting recently. "We complained forever that the average person was not getting involved in the market. Now that the average person is getting involved, everyone is complaining about it."