Profit Pregame

Signs Retail Trader Buying is Slowing Could Lead to a Market Correction

New Data Shows a Lull in Retail Buying on the Dip

A force that has long been the market’s savior could be starting to show cracks.

What’s happening?

Over the last few years, no matter what the world threw at the stock market – be it geopolitical turmoil, supply chain issues, trade wars, and even a global pandemic – there has always been a constant force there to help keep the market afloat…

Retail traders that bought the dip.

The year 2020 was an incredible example. As the COVID-19 virus spread across the world with no sign of an end in sight, many assumed the market would take many months or even years to recover from the ensuing global shutdown.

But just four months after the March 2020 lows, the S&P 500 was already back above it’s all-time high. Much of that can be credited to a wave of retail investors moving into the market to buy up heavily discounted stocks.

However, there’s some alarming new data that suggests that the support that retail investors have provided to the market as it falls could be waning.

Where’s the money?

According to Vanda Research – which monitors order flow on retail trading platforms – everyday traders aren’t jumping at the opportunity to buy the market’s latest pullback as they have in the past.

Sure, there have been some buyers moving in during the market’s 2.1% decline in September. But the amount of buying this month has been anywhere between 35% and 100% less than in similar sized pullbacks earlier this year.

That has some analysts concerned that we could be in store for a deeper correction than we’ve previously seen this year if institutions continue to sell off positions and retail traders aren’t there in force to buoy the market.

Here’s what I think…

How do I get some?

I’ve been saying for weeks now that the market likely needs to move significantly lower before it will attract new buyers.

For the most part, the market has continued to climb higher throughout the year, and we could be seeing the first signs of buying fatigue from the retail crowd.

So yes, we could be on the cusp of a big reversal for the market in the coming weeks.

Historically speaking, September has been the worst month for the market for the last twenty years – and this year isn’t likely to buck that trend based on the data from Vanda.

I would not recommend getting too committed to new long positions in these market conditions. I’m going to be very cautious in my own trading over the next few weeks while we see how this latest pullback plays out.

If I do get long, I’m only going to be buying the absolute best trade setups.

And I know exactly how to find them.

Follow the Smart Money to Profits

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In the Spotlight: Steer clear of this gambling play

I’ve written a lot lately about the great potential of U.S.-based gambling stocks, particularly in the sports gambling space.

But if you think all gambling stocks are a good buy right now, think again.

Amid fresh geopolitical turmoil, you’ll want to stay far away from these stocks.

On Wednesday, shares of casino stocks based in Macau – a region under Chinese sovereignty – lost more than $18 billion.

The dramatic decline came as the government began an overhaul of Macau’s gambling industry.

Macau’s casino licenses are up for rebidding next year, and authorities are seeking to crack down on what they see as shortcomings in supervision over the industry in the world’s largest gambling hub.

Wynn Macau, Limited (WYNMY) took the worst loss of Macau’s casinos with a roughly 34% drop since Tuesday announcement of a 45-day consultation period on the gambling industry, but none of Macau’s major casino stocks were spared a loss.

While that’s a huge dip that may be tempting to buy, I’m likely staying far away from any casinos with exposure to Macau until we know more about how this will play out.

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