Panic Buying Turns to Panic Selling as Fast Money Cashes Out

(Bloomberg) -- Fear of missing out has turned into fear of getting caught.

In a sign of the times, a strategy that buys the most heavily-traded U.S. stocks was the worst-performing among 10 quantitative factors tracked by Bloomberg on Monday. In fact, the market-neutral gauge has declined for the past three weeks, its biggest slump since March 2017.

That the most actively-traded shares are now the market's worst performers may be a sign that fast-money investors who jumped on the bandwagon in technology stocks are the same ones driving the selling.

Tech firms -- heavily represented in the most traded index -- fell 2.5 percent Monday following a 4 percent slump in March, their biggest monthly decline since April 2016, according to data compiled by Bloomberg.

In normal times, heavily-traded stocks don't overlap much with momentum. Market leaders can carry the market higher without any frenzied buying or selling. During the first three months of the year however, speculative buyers created a strange market quirk, in which the highest turnover shares were also the best-performing ones.

The fact that this relationship has now reverted to normal may be a sign that a phenomenon some warned of earlier in the year is coming to pass.

“The issue with speculator money is they can come in and drive prices up and once they see signs of something happening, they quickly leave and drag prices down,” Vitali Kalesnik, head of equity research at Research Affiliates LLC, told Bloomberg News in January.

To contact the reporter on this story: Dani Burger in London at dburger7@bloomberg.net.

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Yakob Peterseil, Sid Verma

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