Meme-stock momentum has withered after retail traders drove a 3-week rally in AMC, BlackBerry, and other Reddit favorites

AMC stock
Igor Golovniov/SOPA Images/LightRocket via Getty Images

  • Meme stocks are losing steam after a three-week rally that mirrored the frenzy of activity seen earlier this year.
  • Some of the most popular stocks have dropped 17% in the past week, Vanda Research said.
  • “Retail investors will rush to the exit unless there’s an immediate rally,” the analysts said.
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Meme-stock momentum is fading after a three-week rally that mirrored the GameStop frenzy earlier this year.

The latest meme-stock bubble has lasted for three weeks, said Vanda Research senior strategist Ben Onatibia and analyst Giacomo Pierantoniwhich, which is about the same timeframe as earlier this year when an army of Reddit day traders poured into GameStop to push a short squeeze and drove other favorites higher as well.

Now, momentum for the basket of companies is “deteriorating,” as a basket of the most popular stocks has fallen 17% in the past week, the analysts said. On top of that, open interest for meme-stock call options has dropped in the past couple days as traders cash in before the expiration. And that’s likely to continue.

“Given the amount of risk embedded in these investments, we think retail investors will rush to the exit unless there’s an immediate rally,” the analysts said in the Wednesday note.

Vanda Research Meme Stock pullback
Source: Bloomberg, VandaTrack

AMC Entertainment led the latest round of meme-stock madness. After the company’s once-largest shareholder dumped almost all of its remaining shares, retail traders poured into the stock for weeks, driving it to all-time highs. Shares of the movie-theater chain are now trading around $60.

Other retail-trader favorites, like BlackBerry, GameStop, Clover Health, and Nokia, followed AMC’s footsteps amid the rally. Meanwhile, new names like Beyond Meat, Wendy’s, WorkHorse, ContextLogic, and Clean Energy Fuels, also joined the basket.

The trend of meme stocks began earlier this year with retail traders wanting to squeeze short-sellers on nostalgic stocks like GameStop and AMC Entertainment. But now, Vanda said, “squeezing highly shorted stocks is quickly falling out of fashion.”

The fizzling out of the meme-stock craze has coincided with a rally in cryptocurrencies. Matt Maley, chief market strategist for Miller Tabak + Co., told Insider previously that meme stocks in the past have taken off when cryptocurrencies have corrected, and vice versa. He said as the Federal Reserve considers pulling back on quantitative easing, there will be less liquidity in the markets.

Meme stocks and other “high-flying liquidity-fueled assets are going to have a tougher time rallying to the same degree that they once did,” he said.

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BlackBerry and Nokia climb as Reddit favorites make a resurgence

BlackBerry CEO NYSE
John Chen, CEO of BlackBerry, gives an interview following the opening of his company’s stock at the New York Stock Exchange (NYSE) in New York, U.S., October 16, 2017.

  • BlackBerry and Nokia gained as much as 7.4% and 7.2%, respectively, on Thursday as Reddit traders returned to their favorite stocks.
  • The day traders who lifted meme stocks in January returned to the market Wednesday afternoon and boosted GameStop shares.
  • The revival of strong retail-investor momentum also lifted AMC, Koss, and Express.
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BlackBerry and Nokia rallied on Thursday as the revival of Reddit-trader momentum lifted a handful of so-called meme stocks.

BlackBerry rose as much as 7.4%, while Nokia gained 7.2% at intraday highs. Both stocks quickly pared gains through the morning, with BlackBerry turning slightly negative soon after the open.

The nostalgic telecom names were among the several stocks to surge throughout January as day traders uniting in forums like r/wallstreetbets piled into highly shorted companies. The rally, best known for sending GameStop shares surging, died down in February as momentum shifted and retail investors rapidly exited their positions.

The final minutes of Wednesday’s trading session signaled the day-trader crowd is ready for round two. GameStop spiked 104% higher into the close as casual investors cheered the ouster of its chief financial officer, Jim Bell, as part of a company overhaul. The bullishness quickly spilled over into other Reddit favorites, including AMC, Koss, Nokia, and BlackBerry.

Posts on Wall Street Bets and other online forums suggest the upswing has some staying power. A post predicting “the Mother of All Short Squeezes” for GameStop stock sat at the top of Reddit’s “Popular” page at 8:30 a.m. ET, exposing the website’s users to the latest phase of the Reddit-trader saga. Hugely popular posts likely contributed to the January meme-stock rally, and a revival of such online activity could fuel similar inflows.

However, the day traders are no longer operating from the shadows. The GameStop surge drew scrutiny from Wall Street, regulators, and lawmakers, sparking new debate over protections for retail investors and their power in the market.

The House Financial Services Committee held a hearing on the phenomenon last week that included testimony from Robinhood CEO Vlad Tenev, Citadel CEO Ken Griffin, and popular retail investor Keith Gill, among others. The Senate Banking Committee is expected to hold its own hearings in the near future.

BlackBerry closed at $11.32 on Wednesday, up about 70% year-to-date.

Nokia closed at $4.04, up 4% year-to-date.

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