Transcription
Trading activity rebounding from its April dip. Joining us now to take a closer look. Joe Mazzola, head of trading and derivatives strategist at Charles Schwab. Joe, great to have you on the show. It's been a bit since we've talked. So, pleasure having you on today. As you look at the stacks, when we saw Schwab clients become net buyers again in May, what was the biggest takeaway from this rebound in the stacks report?
Yeah, it was it was interesting because while there was some heavy concentration in the semiconductors like Nvidia, Micron, Intel being the top three buys, there was diversification outside of that area. When you look at maybe the top ten. So one thing I found very interesting is that over the past couple of years that I've been doing this report, every now and then you'll see one, maybe two ETFs kind of make their way into the top ten. We saw three this time. So, you know, there's it's there's a rotation in the market, right? But there's also kind of rotation in terms of what clients are buying. And so you saw those names rise to the top in terms of the net sales. It was interesting. It was Apple, AMD and Tesla. So it wasn't just going out there buying the chipmakers. AMD had had a pretty phenomenal run up to that point. And I think the other thing that really kind of caught my attention, Marley, was the idea of the options and how they were used. We saw a lot of put selling throughout the month of May. You know, volatility got compressed a decent amount. And then, you know, up until last Friday. But the put selling was pretty prevalent. And it shows the level of sophistication that Schwab clients are now utilizing different type of options strategies as a way to participate in the market without having to fully monetize the purchase of a buying shares.
All right, so let's dive into some of that first with the ETFs with three of those top ten net positions being ETFs. What does that say to you about investor psychology right now, Joe?
Yeah, I think there's a couple of things, Marley. I think if one of the ETFs, Dram was a way for them to participate in some of the South Korean stocks that aren't an ADR here in the US. So I think that that was a way for them to get some of the some of the chip making and then especially the memory exposure, given they're given their weights within that ETF. Other two are, you know, your traditional Qs and Spiders, but it does show that investors are looking for ways to kind of broaden out when, especially when markets leadership has narrowed as much as it has. You know, that was a big takeaway just from the market overall. In the month of May. We got to the point where it was only about 50% of the stocks trading above their 50 and 200 day moving averages. It's it's believe it or not, it's actually widened a little bit in the last couple of trading days. And even Friday's sell off was really, you know, semiconductor memory trip, trip chip, excuse me, driven and not necessarily broad based. So I think that that rotation that you're seeing in the market is being kind of picked up by investors and they're looking for opportunities to find other winners that maybe aren't just within that, that, that real small group.
And I want to talk about the options too, as that was one of your standout notes here about some of the trading and the more sophisticated investor here. As far as the action you were seeing in options and, and some of these more sophisticated styles of trading, where are you seeing it? Are they are we hedging here? Are we generating income? Are we trying to maintain upside participation while limiting exposure here? Because there certainly has been a major concern about a volatile backdrop. Although sometimes we've seen the VIX stay surprisingly low over the month.
Well, yeah. Agreed. And I think two out of the three were really kind of stood out. I think more of an income. We saw a decent amount of call selling and and the put selling. So that's a way to kind of participate generate income while you're waiting for stocks to move. The other one, we still see a decent amount of call buying. And that was one of the things that I've been kind of calling out for the last couple of weeks on the network as a, as a, hey, watch out for, right? Because it makes sense as a, in terms of a stock replacement, right? If you don't want to have that full allotment tied to stock ownership, but you want to participate in the upside, buying calls is a good way to do that. What happens though, is when everybody's on the same trade. And I think that that's something that kind of led to maybe Friday's sell off is a lot of retail has been participating in that upside call buying. And to be honest, they've been doing they've been doing very well in that. But that that pullback that you see that you saw on Friday, a lot of that was based upon the fact that everybody kind of had to trade on the same way. So, you know, pulling back from some of the, the call, buying, selling, maybe out some of those calls and buying a little protection. I think that was the story for Friday. But May overall just continued to show retail participating in that call buying. Interestingly enough, though, where we are starting to see a little bit more rotation just the last couple of days where institutions have been more downside, put buyers a little bit more of the hedging. So we'll see kind of where that that intersection meets, right. Is the market going to continue to reward the upside, or is it going to be a little bit more cautious in the next few weeks?
And Joe, as we look at, you know, the tech trade and AI predominant here, but it wasn't a blanket move into tech. Who are our top net buys in that space. And where did we see the most selling action?
Yeah, like I said, you know, Nvidia, Micron, Intel, those were the top three buys. You saw Microsoft. So that's one that's been on the list for a while now. In terms of the cells. What was interesting, like I said, AMD shows that it wasn't just buying all the chips, right? So they did sell AMD. But I think the, the thing that kind of caught my attention a little bit was Apple, especially going into the Worldwide Developer Conference this week. So it looked like maybe investors were maybe trimming some of that out upside that's you know, that stock's been a, a really nice win in the last couple of weeks. So maybe taking some profits there. Tesla's always interesting because that just tends to be a trade, right? When it when it gets down to certain levels it's on our top five buy list. When it gets up to certain levels on the top five sell list. So that one just kind of vacillates around CrowdStrike. I mean, if you look at the movement that that stock had throughout the course of the month, you know, just big gains, 30, 40, 50% gains. So there was some trimming there as well too. So it was, it, it was interesting in that it wasn't just following one steady path. There was diversification amongst the buys and sells, and there was rotation amongst the buys and sells as well.
Joe, really appreciate you joining us to take a closer look at the data and what we're seeing from Schwab clients.