Cheap stock trading is rising this year: What does it mean?
The Opening Bid team and Crossmark Global Investments' chief market strategist Victoria Fernandez take a closer look at what the rise in cheap stock trading signals about the broader market.
To watch more expert insights and analysis on the latest market action, check out more Opening Bid here.
Jeffrey's noting that trading in stocks under $5 has risen to 26% of whole volume so far this year. That's a huge number. Uh my question to the round table is this, why is this activity in speculative stocks happening? Brook, let me set this up with you because you talked about the meme stock trade earlier on in the show. Uh what is it looking like today because I know a lot of the names that did well early last week sold off into the weekend.
Yeah, if we take a look at the YF interactive over the past five days, if you take a look at the equal weight, we've seen crispy cream really coming to play over the past five days alone. That stock's up more than 20% uh 26% rather. Macy's is also getting a bit of a buzz here. That stock up more than 9%. And what we really know here is what I'm hearing from my sources is that as we reach these record highs, ultimately retail investors are looking for other ways to get in on the market here and that's contributed to the recent gains from American Eagle. Once they announced that Sydney Sweeney campaign, retail investors thinking that there's a potential growth story there, they're looking to get in on American Eagle. In addition to that, we've seen Kohls, the company that has really struggled over the past year, especially as they search for a new chief uh you know, CEO there. These companies that really have not been performing well. A Kohls, a crispy cream, uh um you know, Macy's has been underperforming and American Eagle, they're getting this recent buzz from retail investors who think potentially there could be an uh a growth story there. Open door and Carvana also getting attention there. Open door thinking that, you know, investors around there are thinking this could be another turnaround story like we saw with Carvana as well.
Uh we had a great chat with uh Tasty Trades uh Tom Sos. Now take a listen to what he said on this meme stock menu.
This is also the time of year where there's no real sports to bet on because it's really just baseball. So, you know, what better place to gamble than a zero commission, zero fees, you know, in and out of of all these little penny stocks for basically no money.
Victoria is that we're looking at here. Uh there's really no sports to bet on and people want to try to pick a winner that's priced at $2 a share.
Well, it's an interesting perspective. I mean, I do have to say go Strows since it's baseball season. But um it could be an element that people are looking for of ways to play this and you look at these stocks, they're mostly like these shorted stocks. So these are more day traders that are going in. These are not your long-term investors that are going and trying to build their portfolio. They are quick trades that are being done, they're small dollar amounts, they're highly shorted stocks, so there's a lot of volatility around them. So maybe it is a little bit of the the gambler's addiction if you want to put that that phrase there of people looking for ways to play the market on a on a quick basis, but this is definitely not a long-term investment strategy that we would want people to invest in.
And as I'm of the mindset that this type of activity is a sign of froth in the broader stock market.
It certainly is and Wall Street has been certainly talking about this. Goldman Sachs has talked about the fact that you are seeing speculative trading on the rise with their speculative trading index that they have. And call options have been surging, you have the volatility index that's sitting at around 15. So that means that there's really no fear in the market right now. You've got Bitcoin that's been surging, equities surging, these meme stocks that have been surging. So this indicates a strong risk on sentiment, but Wall Street warns time and again that when you see this type of scenario, this is ripe for some type of pullback. So we look overbought in a lot of categories and Wall Street's warning, hang on because this is when you may see a pullback.
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