War in Eastern Europe has come to dominate the current news cycle, but the meme stock niche of the financial markets recently reclaimed at least a portion of its former glory.
After notching year-to-date lows on March 14, both GameStop (GME) and AMC Entertainment (AMC) have set the markets ablaze with furious rallies in the last nine trading days. GME is now up a jaw-dropping 82% since March 14, while AMC has spiked nearly 50%.
Much like previous rallies in these stocks, it’s difficult to attribute current performance back to any specific business development.
During its most recent earnings report, GameStop reported that revenues had increased 6% over the previous quarter. Nothing to sneeze at, but certainly not the type of growth that meme stock dreams are made of.
It didn’t hurt that the chairman of GameStop, Ryan Cohen, announced he had purchased 100,000 additional shares in the company. Optimism from that insider purchase clearly bled over into the stock’s performance, as the bulk of GME’s recent move higher came after Cohen announced the share purchase, as illustrated below.
Meaningful corporate announcements out of AMC Entertainment have been similarly slim in recent weeks, suggesting that the rallies in both stocks are likely rooted in the same forces that put them on the map in the first place.
Both AMC and GME have seen their mentions on Reddit explode in the month of March, a strong indicator that momentum (i.e. “momo”) players have once again zeroed in on the meme niche, and are leading the charge higher.
How long the current rally lasts is anyone’s guess. It’s certainly possible that some meaningful business development could be announced by either company in the coming days and weeks.
Outside of that, investors and traders would likely be wise to tread carefully.
Last year, daily trading activity in GME and AMC spiraled during the third and fourth quarters, alongside declining mentions on Reddit. Ultimately, shares in both companies also moved lower, as social-media-fueled momentum appeared to dissipate.
As many are already aware, when it comes to the momentum trade, most of the profit usually goes to the early movers. Those late to the game can often end up “holding the bag.”
In the financial universe, the term “bagholders” traditionally refers to shareholders in a bankrupt company—the people left holding a bag of worthless stock.
Like any investment, it’s virtually impossible to predict how AMC and GME will perform in the long run. But when the fundamentals don’t match performance—especially extreme moves—that’s a time to tread carefully.
For more on what’s been moving the markets, including the recent rise in meme stocks, readers are invited to review a new installment of Jones and Friends on the tastytrade financial network.
As always, readers can get daily updates on the biggest happenings in the market via TASTYTRADE LIVE, weekdays from 7 a.m. to 4 p.m. CST.
Sage Anderson is a pseudonym. He’s an experienced trader of equity derivatives and has managed volatility-based portfolios as a former prop trading firm employee. He’s not an employee of Luckbox, tastytrade or any affiliated companies. Readers can direct questions about this blog or other trading-related subjects, to firstname.lastname@example.org.