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Rising fever in meme stocks
Information is not investment advice
What are meme stocks?
The year 2021 has brought something new to the market – the so-called ‘meme stocks’. These are the stocks on hype – everyone is talking about them and retail investors rush into them. As a result, the trading volume goes up not for some fundamental reasons, but simply because of the media attention.
It all started in January at the Reddit forum called WallStreetBets. The users who gathered there picked stocks with high short interest and then provoked a short squeeze by buying them and spreading the info about the upcoming surge. As a result, the prices skyrocketed. Since then the nickname 'meme stocks' has stuck and traders have kept trading these instruments making them extremely volatile.
Examples of meme stocks include GameStop, AMC, and BlackBerry. There are other companies as well – the common thing is that those firms are doing badly in terms of business, so there were many sell positions in them.
What’s happening now?
AMC spiked more than 100% on Wednesday, the struggling brick-and-mortar retailer Bed Bath & Beyond jumped by about 51%. GameStop is up by 60% in the past month. BlackBerry went up by as much as 15% Wednesday and increased by 55% in the past month.
This most recent swing to the upside can be explained by the fact that investors await the release of the US nonfarm payrolls (NFP) due on Friday. While they wait, they have reduced activity in traditional Wall Street stocks and turned to meme stocks and cryptocurrencies.
What does it mean for traders?
Everything that is outside the normal market’s behavior is worth attention. It’s necessary to understand that while the likes of AMD enjoy short-term glory, their long-term fate is doubtful. The business model of AMD and other meme stocks have serious flows, so in reality, they represent bubbles. As a result, trading the broad market like S&P 500 may be a less risky but still a quite rewarding idea.
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