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Investor Movement Index (IMX) for October 2016

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November 7, 2016
How Investor Movement Index can help retail traders.

Some streaks seem to last forever, like the Chicago Cubs’ recent 108-year stretch without winning a World Series, a record of futility that just ended. Others aren’t so remarkable but still bear watching, like the current one in which retail traders keep steadily adding to their stock market exposure.

For the third-straight month and the sixth in the last seven, retail traders tracked by TD Ameritrade were net buyers of stocks in October, according to the Investor Movement Index®, or the IMXSM.  The October IMX reading climbed to a new two-year high of 5.83, compared with 5.49 the previous month, and is now up nearly 22% from a year ago and nearly 35% from the recent low posted last March. The last time the index was this high? Back in July 2014, long before the Cubs were even in contention, let alone the World Series.

Once again, there was decreased market volatility among many widely held names within TD Ameritrade client accounts during October, but these decreases weren’t as rapid as the decline in actual volatility in the overall market, which resulted in an increase to the IMX reading. However, implied volatility in the S&P 500, measured by the CBOE’s VIX index, actually rose during October ahead of the November election and concerns about possible Fed rate hikes. All of the major indices declined during the period tracked by IMX.

I’m often impressed by retail traders’ ability to stick to a strategy no matter what short-term moves the market makes. Recently, the IMX showed strong evidence that this group of investors carefully chooses to raise exposure to certain large stocks when prices fall, and also looks for stocks that pay nice dividends. Names with those characteristics that proved popular in October included General Electric (GE), AT&T (T), and Verizon (VZ). All of these dividend payers have been down on their luck lately, at least as far as their stock prices are concerned, but all attracted retail investors in October. So don’t let anyone say that retail traders just chase the high-fliers.

Another popular buy during the month was Amazon (AMZN), whose shares fell late in October after reporting what were widely seen as disappointing earnings.

Even as retail traders made investments in some of the more downtrodden stocks, they took advantage of rallies to lessen their exposure to some other big-name shares, including financial sector behemoths and a couple of major tech stocks.  In the accompanying video, you’ll get my take on the October IMX reading, and learn which stocks retail traders were buying and selling during the month. It may come as something of a surprise to see one of the names that retail traders reduced exposure to. Here’s a hint: it might have made the device you’re reading this article on.

Remember, this sophisticated index is a tool that lets you see what hundreds of thousands of actual traders were doing in October across all markets. Retail traders continue to have the biggest exposure to the stock market in two years, but that could get a severe test in November with the U.S. election potentially sparking more volatility, the stock market tumbling to four-month lows, and widespread predictions for a December Fed rate hike.

Until next month,

Nicole

@TDANSherrod

Click here for a copy of the report.