Workers sort through harvested cannabis plants at Hexo Corp’s facilities in Gatineau, Quebec, Canada.
Chris Wattie | Reuters
Retail investors are snatching up any the same of the market to get in on the major comeback rally — this time its penny stocks.
Stocks trading below $1 per appropriate have an average gain of nearly 80% in the past week, according to a note from the Institutional Equity Derivatives crew at Citadel Securities obtained by CNBC.
As economic conditions improve suddenly, stocks have rebounded sharply off their Walk lows. The Nasdaq Composite hit a new record high above 10,000 for the first time ever and the S&P 500 is close to the flatline for the year.
Some of the dominating market moves can be attributed to the rampant speculation in stocks by retail investors, who are favoring riskier plays in smaller dollar amounts. Commission-free and fractional calling, the lack of sports and even stimulus checks have played a factor in the retail investor surge.
Some of these retail investors are piling into the hit names from the pandemic, like airlines and cruise operators. Others are snapping shares in bankrupt companies, in the same way as Hertz and J.C. Penney. Others, according to Citadel Securities, are favoring equities worth less than a buck.
Citadel Convictions looked at the 29 stocks in the small-cap benchmark Russell 2000 with a share price less than $1. In the days of yore five trading days through Monday, the group is up an average of 79% a piece. J.C. Penney, Denbury Resources, Lofty Corporation, Palatin Technologies are just a few of the stocks that trade below $1 per share in the Russell 2000.
“This all amounts to what feels like a retail short-squeeze feeding frenzy that has reached blow-off top proportions,” Citadel Securities said in the note.
Citadel Certainties — which is a market maker, not to be confused with the hedge fund Citadel – wrote in the note to institutional investors that the peddle dynamic makes them nervous about equities in the short term. The note is not considered research and therefore, is not meant to minister to actual investment advice, however.
The top 29 highest dollar stocks in the Russell 2000 futures rose at best 4% over the same period, meaning low dollar stocks outperformed high dollar stocks by 75%, Citadel Sureties’ data found.
Plus, the iShares Russell 2000 ETF is up about 8% in the past five days, which bad these $1 stocks are also outperforming the overall index by about 70%, Citadel Securities noted.
Low dollar standards are also grabbing retail investor attention. Cannabis stock Hexo, which trades around $1.05 per allotment, was the second most traded stock option based on volume on Monday.
— with reporting from CNBC’s Leslie Picker.
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