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Retail investors are back in full force as the market finally suffers a short-term pullback. Here’s what you need to know:
Retail has Returned to the Market
According to Citadel Securities, retail trading activity is on pace for its largest month ever in May:
"Citadel Securities gross retail cash volumes ranked in the 96th percentile in April versus all months since 2019, while May is currently on track to become the most active month ever, pacing roughly ~12% above January 2021 levels. Options activity has been similarly impressive."
Image Source: Citadel Securities
Retail returning to the market is not necessarily bearish in the intermediate to long-term. However, in the short term, a frenzy of retail trading can signal frothy bullish sentiment.
The Short-term Trend Remains Intact
Friday and Monday, the Invesco S&P 500 High Beta ETF ((SPHB - Free Report) ) suffered its worst two-day drawdown in four years.
Image Source: Zacks Investment Research
However, as usual, context is critical. If you are an investor who has been out of the market and just started buying stocks over the past few days, you have likely gotten hit hard. Conversely, some sort of pullback should not be surprising considering that the Nasdaq 100 Index ETF ((QQQ - Free Report) ) just went 28 sessions without touching its short-term 10-day moving average – signaling immense power.
Image Source: TradingView
While chasers have been hurt by gravity, the powerful price action suggests the market is likely to correct through time more than price.
NVIDIA Earnings Will Dictate the Market’s Next Move
Since the launch of ChatGPT in late 2022, investors have been hyper-focused on artificial intelligence stocks and AI infrastructure stocks. As the leader of the AI boom and the largest publicly traded company (with a market cap of $5.38T), chip leader NVDIA’s ((NVDA - Free Report) ) earnings will dictate where the market goes next. NVIDIA will report Q1 2027 earnings on Wednesday, May 20th, after the market closes. Zacks Consensus Estimates suggest that the Zacks Rank #2 (Buy) company will more than double its earnings year-over-year.
Image Source: Zacks Investment Research
Although Wall Street expectations are high, NVDA has delivered positive earnings surprises in twelve of the past 13 quarters.
Bottom Line
Ultimately, the influx of retail traders and the recent minor pullbacks are a classic reminder that market gravity usually wins in the short term, especially for those chasing recent highs. However, the structural uptrend remains intact as all eyes shift to NVIDIA’s upcoming earnings release.
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Retail Returns, Momo Retreats, NVIDIA Looms
Key Takeaways
Retail investors are back in full force as the market finally suffers a short-term pullback. Here’s what you need to know:
Retail has Returned to the Market
According to Citadel Securities, retail trading activity is on pace for its largest month ever in May:
"Citadel Securities gross retail cash volumes ranked in the 96th percentile in April versus all months since 2019, while May is currently on track to become the most active month ever, pacing roughly ~12% above January 2021 levels. Options activity has been similarly impressive."
Image Source: Citadel Securities
Retail returning to the market is not necessarily bearish in the intermediate to long-term. However, in the short term, a frenzy of retail trading can signal frothy bullish sentiment.
The Short-term Trend Remains Intact
Friday and Monday, the Invesco S&P 500 High Beta ETF ((SPHB - Free Report) ) suffered its worst two-day drawdown in four years.
Image Source: Zacks Investment Research
However, as usual, context is critical. If you are an investor who has been out of the market and just started buying stocks over the past few days, you have likely gotten hit hard. Conversely, some sort of pullback should not be surprising considering that the Nasdaq 100 Index ETF ((QQQ - Free Report) ) just went 28 sessions without touching its short-term 10-day moving average – signaling immense power.
Image Source: TradingView
While chasers have been hurt by gravity, the powerful price action suggests the market is likely to correct through time more than price.
NVIDIA Earnings Will Dictate the Market’s Next Move
Since the launch of ChatGPT in late 2022, investors have been hyper-focused on artificial intelligence stocks and AI infrastructure stocks. As the leader of the AI boom and the largest publicly traded company (with a market cap of $5.38T), chip leader NVDIA’s ((NVDA - Free Report) ) earnings will dictate where the market goes next. NVIDIA will report Q1 2027 earnings on Wednesday, May 20th, after the market closes. Zacks Consensus Estimates suggest that the Zacks Rank #2 (Buy) company will more than double its earnings year-over-year.
Image Source: Zacks Investment Research
Although Wall Street expectations are high, NVDA has delivered positive earnings surprises in twelve of the past 13 quarters.
Bottom Line
Ultimately, the influx of retail traders and the recent minor pullbacks are a classic reminder that market gravity usually wins in the short term, especially for those chasing recent highs. However, the structural uptrend remains intact as all eyes shift to NVIDIA’s upcoming earnings release.