Retail investors can make a bet or take on an opposing view with increased odds of success whenever a market gets too crowded on the long or short side. Like the 2008 financial crisis, when everyone bet in favor of housing only to find out they all had to run for the exit all at once, only a few investors could spot this unfair advantage opportunity.
In today's stock market, investors can look at this report from Bank of America, which covers the weighing in thematic trades and investments. The most crowded trade is now in the United States' so-called "Magnificent Seven" stocks; the second most crowded trade is shorting Chinese stocks. Now that everyone is rushing to close their shorts, Chinese names like Alibaba Group (NYSE: BABA) and Baidu Inc. (NASDAQ: BIDU) have triggered a major short squeeze.
The same could happen if any downturn were to occur in crowded technology stocks like Meta Platforms Inc. (NASDAQ: META), Apple Inc., and even investor favorite Tesla Inc. A rush to exit these names at once could cause what's termed a pain trade, where most of the participants will be brought to maximum risk tolerance and forced to liquidate and accelerate the selloff.
Pain Trade #1: Why Tesla Stock Could Be at Risk
Tesla is riding on two major tailwinds and thesis today. First, the robotaxi unveiling might or might not be here as soon as investors think. Second, the pace of delivery numbers to be released this week places a significant weight on the potential future path of Tesla stock.
The good ...
