Naked investors who went all-in on stocks might sell once they recoup some of their losses, which could lead to a bigger decline in the market as the COVID-19 pandemic progresses.
The prevailing wisdom among stock investors now is to buy when the number of new coronavirus cases slows. Data from Italy, Spain, France, Germany and, most importantly, New York [City], indicate that new cases may have peaked. Many investors are rushing headlong into the stock market.
The naked investors are those who were fully invested in the stock market at the peak, and many were buying on margin. In spite of warnings, these investors chose to go “naked” — that is, without any protection for their portfolios… Data from the 1987 crash, the 2000 technology bubble and 2008’s Great Recession show that naked investors hold on until the stock market rallies 20% to 30%. Upon such a rally, naked investors breathe a sigh of relief that their losses are smaller, and they start selling.
Naked investors are concentrated in two groups: large-cap tech stocks such as Apple, Amazon, and Microsoft, and semiconductor stocks such as Advanced Micro Devices, Nvidia, and Intel. For important clues, consider watching these six stocks to see if their relative strength slows.
MacDailyNews Take: No, we’re not out of this, not by a long shot. This coaster’s got a ways to roll, but we may be seeing a sliver of light at the end of a tunnel and any bit of good news is great news in times like these. Hang on, everyone! This too shall pass.
[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]