To the moon! Deeper dive into meme stock trading
Jun. 09, 2021 12:20 PM ETAMC, BB...By: Yoel Minkoff, SA News Editor54 Comments
The meme trade is transforming into something new as retail traders continue to make waves in the broader markets. The ability to pool together their collective research or sentiment is lending credence to a new investment strategy, which is generating so much buzz that brokerages, hedge funds and institutions didn't see it coming. With more stocks being added to the category by the day, volatility is even affecting rebalancing decisions of market indexes like the Russell 2000 (NYSEARCA:IWM), which was once considered a stable benchmark for mutual funds before all the action.
The old meme list that headlined favorites AMC (NYSE:AMC), BlackBerry (NYSE:BB) and GameStop (NYSE:GME) is changing. Over the last few sessions, we've seen big run-ups and falls in names like Clover Health (NASDAQ:CLOV), ContextLogic (NASDAQ:WISH), Clean Energy Fuels (NASDAQ:CLNE), GEO Group (NYSE:GEO) and even Wendy's (NASDAQ:WEN). The fast-food chain was added to the group yesterday, which marked a notable departure from the classic meme mold that featured high short interest in order to squeeze a stock.
Backdrop: The meme trade began with GameStop back in January and was partly a strategy (short squeeze), partly a gamble (remember binary options?) and partly a middle finger to Wall Street (little guy vs. the suits). The strategy was an outgrowth of the YOLO trade, which was popularized on the WallStreetBets forum to reach financial freedom overnight. Retail bros would throw all of their savings into one stock without caring about risk management or diversification. The method was compounded by waves of swarm trading, as well as gamification of stock apps and access to commission-free trading.
Remember the Hertz (OTCPK:HTZGQ) bankruptcy bid-up that occurred last summer and the Kodak (NYSE:KODK) craze that followed? What about Tesla (NASDAQ:TSLA) once being worth more than every carmaker on Earth despite a fraction of their sales? Do we dare mention Bitcoin (BTC-USD), Dogecoin (DOGE-USD) or other cryptos?
Go deeper: If meme trading is the new casino gambling, then timing is everything until the last trader is left holding the bag. Some still swear by the technicals, which have created countless day trading channels and messaging platforms. Others are quick to point to the eye-popping fortunes being posted online, but don't forget the whopping losses that get far less coverage. It also leads one to wonder about the broader public markets, where every share is only worth as much as people are prepared to pay for it. With the meme trade spreading to new sectors and industries, will stock fundamentals still hold water? Did they ever?
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