Robintrack Newsletter (6/15/2020)

Stocks pare losses, but unphased retail investors are still buying everything... especially if the (company/stock) is cheap/bankrupt/popular.

Jun 15, 2020

Good morning! Today is June 15, 2020. Last week, the Fed’s planned FOMC meeting indicated that the nation’s central bank would stay the course on its stimulus plan, sharing its intention to keep interest rates where they are through at least 2022. Equities largely remained in the green after the announcement, but went on to pare heavy losses later in the week. The Dow Jones Industrial Index fell 7 percent on Thursday, with other indices also trading down.

However, despite the losses late in the week, Robinhood investors continued to pile into equities. Popularity changes (a measure of how many individuals are buying new positions or selling completely out of positions) show that out of the top 100 most ‘popular stocks’ of the week, 99 of them saw net increases in positions. Just one, Cinedigm ($CIDM) saw a net decrease in holdings. This week’s newsletter aims to try and reconcile the perplexing trends in investing amidst the backdrop of current events.

They’re buying everything!

Among the top 50 stocks with the largest popularity increases are electric car companies, tech firms, travel companies, and gas/oil-related ETFs/companies.

Nikola ($NKLA) and Tesla ($TSLA) were the 1st and 10th most-acquired stocks of the week. Over 105,578 new investors opened positions in Nikola ($NKLA), a largely unproven Tesla competitor which was listed just weeks ago after an acquisition introduced them to markets. The company has boiled to the top on pictures and promise — they have virtually no orders, no pricing, and a wide (and extremely trying) array of products they’re trying to produce. As of this writing, the company is valued at $23.1bn—13% of the market cap of the highly successful Tesla. Last week, Tesla stock crossed $1,000 for the first time — now having more than doubled from its March lows. In the week, over 30,000 people picked up Tesla. They did this in a week where the stock traded at the highest point it ever has.

Over the same period of time, thousands of investors piled into tech firms such as Apple ($AAPL) and Amazon ($AMZN), which were the 7th and 11th most acquired-stocks of the week. Both saw roughly 30,000 new investors open positions. Other companies such as Microsoft ($MSFT), Sony ($SNE), and Snap ($SNAP) came in the top 50 most-acquired stocks, having added tens of thousands of investors in spite of the dip.

In a vein of continuity from last week, airline and cruise companies also saw new investors pile in. Though not as popular as addressed in our previous newsletter, companies such as American Airlines ($AAL), Norwegian Cruise Line ($NCLH), Delta ($DAL), Boeing ($BA), United ($UAL), Carnival ($CCL), JetBlue ($JBLU), LATAM Airlines ($LATAM), and Alaska Air ($ALK) all added at least 10,000 new investors and were represented a meaningful sum of the most acquired stocks throughout the week. However, investors picked up these stocks amidst uncertain times. As indicated in last week’s newsletter, a large volume of new coronavirus cases are being reported as states relax their quarantine restrictions. As of Monday morning, as stocks are seeing losses extend from the previous week, airline stocks are apt to be among some of the hardest hit.

Though not comprehensive or exhaustive of the trends from the week, our final handful of stocks which stood out in the top 50 had to do with oil, gas, and shale. This handful splits evenly between leveraged ETFs and individual shale/oil firms.

Leveraged 3x oil ETFs from Direxion ($GUSH) and MicroSectors ($NRGU) both saw large increases in investors. These ETFs aim to provide exposure to oil and gas companies in the S&P — a large volume of which are stable, reputable investments.
A basket of quaint oil and fracking companies saw increased attention. Many of these companies have been hammered by low oil prices and existing debt. Among them are Oasis Petroleum ($OAS), the 5th most traded stock of the week. Like Oasis, all of the other companies traded below $2.00 as of Friday. The biggest object to these quaint fracking companies getting some footing is how quickly oil prices recover — and given the uncertainties of the current time, it is hard telling.

Robinhood users continue to speculate on the stocks of bankrupt companies; “penny stocks”

Large swaths of retail investors are picking up stock in bankrupt companies in a speculative, short-term effort to turn a profit.

As mentioned in last week’s newsletter, Hertz ($HTZ) saw a meteoric rise in the value of its stock just a week after it filed for bankruptcy. The stock fell 48% last week, but over 75,826 individuals started new positions in the troubled car rental company. Amidst the increased retail demand, Hertz requested (and received approval on Friday) to sell a billion dollars worth of stock. Investors on The Street liken buying stock in the company to high-stakes gambling. However, it’s no isolated incident.

Shares of companies such as Chesapeake Energy ($CHK) and J.C. Penney also saw a flow of investors. In the case of the former, the troubled energy company saw massive speculation in their stock. The stock more than doubled during a bizarre trading session, only to collapse in the following trading session. It is largely believed that short covering resulted in an influx of algorithmic trading activity.

This exuberance, whether rational or irrational, also appears to boil down to another class of stocks: penny stocks. Of the top 20 most popular stocks traded in the week, half had traded under $2.00 within the last 60 days, the bulk of which still trade between $0.50 and $1.50. It is hard telling what the long-term holds for each of these stocks individually, but a fair assumption might be that they will pare losses similar to the effects seen in the aftermath of social surges seen in stocks aforementioned like Chesapeake, Hertz, etc.

Cramer’s bull case boils down to Robinhood traders not knowing how to buy or sell

Last week, Jim Cramer, the host of CNBC’s “Mad Money” warned about how more seasoned investors might be bidding up stocks before the open in order to drum up interest. “Pick a couple of stocks, you gun them in the morning,” Cramer said on Squawk Box. “Then you hope people are stupid enough and they buy them.” His suggestion? Retail investors need to learn to wait until the market opens.

Separate Cramer’s comments, a member of the popular /r/wallstreetbets subreddit created a ‘hindsight algorithm’ using Robintrack, which calculated the best and worst plays made by the aggregate of traders. Among the best trades were bets on leveraged gold & natural gas ETFs ($JDST and $UGAZ) and travel companies ($AAL, $NCLH, $CCL) among others. Among the worst trades were bets on speculative stock picks — like ones in distressed sectors ($ACB), bankrupt companies ($CHK, $HTZ), and penny stocks.

So, what do these two comments boil down to? Well, if you’re a prospective retail investor using Robinhood and you're riding the wave along with hundreds of thousands of other investors? Then the best way to trade is…

… against the grain. And though this is no promise or assurance of success, it seems to be going relatively well for some ardent social traders over on /r/wallstreetbets. Even if some of this modeling would go to indicate that Robinhood investors would largely be losing money by buying some of the most active stocks.

That’s a wrap for this week! If you enjoyed the content of this newsletter, we’d greatly appreciate if you share it or subscribe ($5/mo or $50/yr) to help support Robintrack. Supporting Robintrack might also make it possible to produce a daily newsletter, a podcast version, or some other dope stuff. :)

In an effort to be more timely, we are planning to move the newsletter to Friday evening starting this week! This way, it might operate as a better digest of the week behind. However, we’re open to your thoughts and feedback and you can drop us a comment to let us know what you think.

Business As Usual

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