By Gordon Gottsegen
Their reluctance to buy the dip could be a sign that the bottom for stocks is in, Citadel says
Retail investors have been more defensive since the start of the Iran war.
The stock market celebrated the cease-fire deal between the U.S. and Iran. The Dow Jones Industrial Average DJIA, S&P 500 SPX and Nasdaq Composite COMP all gained over 2.5% on Wednesday.
But, as institutional investors drove this rally, retail investors took it as an opportunity to cash out.
Retail investor flows data from J.P. Morgan showed net selling yesterday, meaning investors sold more stocks than they bought in aggregate.
“Today’s relief rally brings confirmation that the shift in retail behavior that we have observed over the past month is persisting: retail moved from ‘buying the dip’ (e.g. this time last year), to now skipping the dips, selling into rallies, and positioning more defensively,” J.P. Morgan analysts said in written commentary.
As the analysts pointed out, this reflects a noticeable behavior shift among retail, or individual, investors. Last year, these investors bought stocks aggressively during selloffs. This year, they haven’t. And instead, they’ve been more inclined to sell stocks when the market rebounds as a way to lock in profits.
“Shifting from buying dips to selling rallies sounds like good trading, doesn’t it? Buy low, sell high is a solid, time-tested strategy,” Steve Sosnick, the chief strategist at Interactive Brokers, told MarketWatch.
Sosnick said that traders on the Interactive Brokers (IBKR) platform were buying steadily, but shifted toward selling last Thursday, which continued through yesterday.
“Could some of them quibble that they missed more of yesterday’s rally than they would have liked? Sure, but no one ever went broke by taking a profit,” he said.
Read: Individual investors are shifting from ‘buying dips’ to ‘selling rips’ as they favor bonds and other defensive bets
Vanda Research, which tracks a slightly different demographic to capture trends among retail investors than J.P. Morgan does, said that it saw on Wednesday the weakest amount of net buying since November 2023. It noted that the first half of April tends to exhibit weakness in retail-investor activity because of the approach of Tax Day. But, on top of that, retail investors have been acting defensively since the start of the Iran war. They haven’t piled into single stocks with the same ferocity, and instead they’ve put money into the market through index-tracking ETFs.
“Under the hood, retail [investors] are still engaged. But activity remains selective in certain names and themes, which has been a feature year-to-date,” analysts at Vanda wrote in a note.
A recent note from Citadel Securities’ head of equity and equity derivatives strategy, Scott Rubner, said that its retail investors remained net buyers for the month of March, but retail participation slowed around 70% from January. Retail investors on the Citadel platform were net sellers last week – the first time this has happened since November 2025.
The Citadel note stated that appetite for options has also skewed bearish, as retail traders buy record levels of put contracts. Citadel said that retail investors are increasingly contrarian by nature, and the recent selling during rallies supports this.
But beyond inherent nature, Citadel said it’s starting to pick up on fatigue among retail investors, which could point to something else: that the stock-market bottom is in.
“While not a timing signal in isolation, this setup reinforces the broader theme: retail participation is no longer a one-way source of demand, and periods of retail exhaustion have historically coincided with more constructive forward returns,” Rubner said.
-Gordon Gottsegen
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04-09-26 1244ET
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