It could be an expensive year for some traders if they hang onto their Magnificent Seven stock bets. The Mag 7 trade itself does seem to be starting to come apart, in a very volatile way. While there will still be winners from this group of stocks, there will also be losers in this context. More on that from us in a later Armchair Trader Plus post.
We were sent some interesting numbers from Interactive Brokers recently which shed light on how traders are reacting to the first two months of the Trump administration and just how much faith they still have in these leading US tech giants.
While it remains to be seen whether the combination of Fed chair Jerome Powell’s soothing tones and talk of lighter tariffs has created a lasting bottom for US stocks or simply a trading bounce, it is quite clear that Interactive Brokers’ customers have pared their net buying activity over that period.
This is not to say that customers have flipped to the sell side. Over the past week, 23 of the 25 most active stocks on the IBKR platform showed net buying activity, and the other two showed only tiny biases to selling. Yet the magnitude of the net stock buying has shrunk to only modest levels, while call options activity is slightly biased to the sell side and put options activity is essentially flat.
Top Five Net Long 11 March (Stocks)
- NVIDIA
- Tesla
- Vanguard S&P 500 ETF (VOO)
- Invesco QQQ Trust
- ProShares UltraPro QQQ
Top Five Net Long 25 March (Stocks)
- Alphabet (Google – Class A shares)
- NVIDIA
- Alphabet (Google – Class C shares)
- Amazon
- Meta
Because the data is a five-day moving average, it is difficult to discern whether these customers lost patience with their perpetual dip buying or took profits after markets bounced off their lows. It is likely a blend of both, but considering that the gross activity is down substantially over the past two weeks, it is reasonable to consider that some faithful buyers got washed out during the recent declines.
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What is very evident is that traders are moving out of the marquee leveraged ETFs which act as a proxy for the S&P 500 index. Net long trades on Tesla NASDAQ:TSLA have also dropped considerably. Traders on the Interactive Brokers platforms are just marginally net long Tesla stock, which is a massive difference from where they were on 11 March.
Wednesday’s 12% rally in TSLA seemed to be powered by a considerable wave of FOMO, and that could have been abetted by active investors who regretted lightening their exposure in recent sessions.
“That said, our customers remain loyal to their favorite names -TSLA, NVDA, PLTR – and have not lost their affection for leveraged ETFs,” said Steve Sosnick, chief strategist at Interactive Brokers. “Traders are going to trade. But maybe with a little less confidence than they had just a few weeks ago.”
The bottom line seems to be whether the Mag 7 can navigate their way through the new minefield that the Trump administration has created for them. Rumours about an easing of the proposed tariffs regime seem to be just that – rumours, for the moment. But the decision to drop those levelraged long trades on the S&P 500 shows that confidence in the US stock market upside in Q2 is ebbing and quickly.
