We are now very late into the rally that started in March after the stock market crashed and many people new to stock trading I fear are heading for a bad situation. Millions of new accounts have been opened at Robinhood and other brokers by people getting into the stock market for the very first time this year. They got in at the start of this rally and have never navigated a situation like the market is in now – when you are towards the end of a rally.
At the start everything goes up big, but at the end this stops happening and many stocks begin to falter making trading in random stocks very difficult. And then when the market starts to go down the stocks that lag the market tend to completely crash. Some are already starting to falter.
The worst five performing stocks year-to-date in the S&P 500 are the following:
NCLH – 78.86%
CCL – 69.57%
FTI – 64.04%
OKE – 62.67%
UAL – 61.49%
These are now VERY dangerous stocks to continue to hold. Take a look for example at the chart of NCLH.
The indicator on the bottom of this chart is the relative strength NCLH/SPX ratio. It crashed in March and is now going sideways. What it measures is the price performance of NCLH in comparison with the S&P 500. Even though it rallied hard off of its March low into its June high it still lagged the market on the rally as this ratio barely went up at all and in fact since June has been fading.
NCLH is badly lagging the market. When the market falls or simply corrects stocks that lag at the end of a rally tend to crash.
This is a danger stock and so is CCL, FTI OKE, and UAL.
Notice that NCLH and CCL are both cruise lines while UAL is an airline stock.
What is worrying me is that all three of these stocks are among the most owned stocks by Robinhood traders. All three are in their top 100 list of the most owned stocks with CCL being number eight with 488,293 in it and NCLH with 361,122. UAL has 323,389 people in it on Robinhood.
This represents a dangerous herd that is likely to sell and trigger a panic crash in these stocks. What is bad is that Robinhood encourages herd like trading and investing, because it provides its users with almost no information on stocks beyond its list of top owned stocks. So people look at that list and buy simply joining the herd. Robinood doesn’t have stock scans or detailed charts, much less information like relative strength to help people figure out what stocks are good. It just has these lists of popular stocks on it so it drives people into herd trading having people do the opposite of what they should be doing to win.
I opened up a Robinhood account two years ago to see what it is like and have come to the conclusion that it is a subpar trading mechanism. Trading on a Robinhood app on a phone is like going to a gunfight with a butter knife – you are just way outclassed in these markets with such little information.
BTW – Bitcoin is badly lagging the market averages too and lining up to crash because of this.
The way to beat the markets is to buy sectors and stocks that are beating the markets that few people are in yet. It’s as simple as that.
Right now there isn’t a single gold, silver, or metals ETF or individual stock on the Robinhood top 100 list. Not one! And that’s despite the fact that the metals and mining stocks are beating the market averages. This is just one reason why I am so optimistic about my top summer stock pick. Find out about it by clicking here.
-Mike
