Cracks are finally showing in retail traders' 'diamond hands', after 2 years of relentless tech-stock dip buying

• Retail investors seem to be tiring of buying the dip in flashy tech stocks, as the market sell-off knocks confidence.
• Instead, they've been chasing rallies in value sectors like energy and financials, an analyst said.

The army of retail investors that mushroomed during the pandemic has been relentlessly "buying the dip" in technology stocks for almost two years.

Online, they cheer each other for their "diamond hands" – that is, their ability to hold onto assets and stay committed to the market, no matter what.

But over the last couple of weeks, as stocks have tumbled, cracks have been showing in those diamond hands.

Data suggest the dramatic fall in shares of flashy tech companies has dented amateur investors' confidence. That means they're more reluctant to follow the pandemic playbook of snapping up stocks such as chipmaker Nvidia.

The tech-heavy Nasdaq 100 index has fallen more than 10% this year, as investors braced for the Federal Reserve to turn off the stimulus taps in a bid to tackle red-hot inflation.

"There have been some signs of retail capitulation," Ben Onatibia, senior strategist at data company VandaTrack, said in a note this week.

Individual traders sold Nvidia and fellow chipmaker AMD on net last Thursday and Friday, Vanda data showed, in a departure from their behavior during previous tumbles.

"Retail investors have been equally reluctant to buy the dip in other risky pockets of the equity market," Onatibia wrote.

"SPACs, ARKK constituents and meme stocks have seen very little demand from retail investors," he said, referring to special purpose acquisition companies and Ark Invest's tech-focused Innovation ETF.

Read more: UBS' investment chief identifies 4 critical tech industries to start carefully buying the dip in after the correction

Yet retail investors are still buying, even if they're less gung-ho than before. It's just that their focus seems to have shifted somewhat.

Vanda's data showed amateur traders poured $1.8 billion into equities in Tuesday's session.

Ben Laidler, global markets strategist at eToro, said the trading platform's users have been investing relatively heavily in energy and real estate stocks, as they grow worried about inflation.

He told Insider he's seen a small, but not dramatic, shift away from tech.

That chimes with Vanda's data. Onatibia said "retail investors have been chasing rallies in value sectors like financials and energy."

Yet Wall Street is having its doubts as to whether the retail crowd can be relied on to support the market in 2022, as they have done throughout the coronavirus pandemic so far.

Monthly active users on Robinhood's highly popular trading app fell to 17.3 million in the fourth quarter, from 18.9 million in the previous three months, according to the company's earnings report Thursday.

"Bottom line, we believe the younger, smaller investor that HOOD so efficiently acquired in 2021 is moderating his/her activity," Piper Sandler analyst Richard Repetto said in a post-earnings note.

The Fed's plans to hike interest rates and the resultant stock-market volatility are testing everyone, retail traders included, Laidler said.

Many analysts say amateur investors will continue to be a force in the market for the foreseeable future. But they might not have the same impact they had a year ago, when they sent GameStop skyrocketing and kicked off the meme stock craze.

"The so-called rise of retail is actually much more structural than people give it credit for," eToro's Laidler said.

"It's platforms like us, it's free trading, it's fractional ownership … it's online communities, it's low interest rates — which, regardless of what the Fed does any time soon, will still be low."