Thursday, March 28

Why Meme Stocks AMC, GameStop and others are crashing today


What happened

A difficult day for the market in general is proving brutal for a handful of the most watched and speculative names in the market. meme actions gamestop (New York Stock Exchange: GME) Y AMC Entertainment (New York Stock Exchange: AMC) they are down 16.5% and 17.1%, respectively, as of 11:58 a.m. ET on Monday. Low-key names of the same ilk as entertainment company cool brands (NASDAQ:GNUS) and autonomous driving technology equipment microvision (NASDAQ:MVIS) they are also lower (at 11.7% and 11.1%, respectively, in those cases). The strong sell-off is not being driven by any alarming news from or about these companies, but by the fact that traders are collectively adopting a new mindset.

And that

In hindsight, no one can be completely surprised.

All four of the aforementioned meme stocks were artificially boosted at some point during the pandemic through coordinated efforts aimed at causing short squeezes for each. And those efforts worked. The problem with this particular dynamic is that all stock purchases made prior to these respective short squeezes can only be turned into profit now by closing these trades with a sell. Selling, of course, puts bearish pressure on a stock, sending it lower when there aren’t enough buyers to absorb a stock’s oversupply.

Falling stock chart on a computer monitor.

Image source: Getty Images.

To this end, in all four cases, the current weakness simply extends to profit-taking which actually began in earnest late last year, if not the middle of last year. MicroVision shares are now down more than 80% from September prices. AMC Entertainment is down 60% since November. GameStop is down 60% from its November peak. Since it is easy for investors to conclude that a stock’s recent trend will continue, these meme stocks were and remain particularly vulnerable to market-wide weakness.

Also Read  Lions' offense struggles in 19-9 preseason loss to Steelers

Now what

It is an enigma for potential buyers. Selling is almost as artificial now as buying was then. Investors know it will end at some point and these stocks will once again reflect the value of their underlying companies’ operations. The question is, when?

While no one knows the answer to that question, investors looking for balanced risk/reward scenarios probably don’t want to jump in just yet despite the incredible depth of the selloff thus far.

That’s not to say that today you can’t mark a major bottom for any or even all of these meme stocks. The fact of the matter, though, is that these four names still carry with them the proverbial baggage of first-time traders, speculators who got in too early or too late and now have unrealized losses, and institutions (including companies and insiders themselves). ) that continue to capitalize on the strange dynamic created in 2020. As long as those echoes continue to resonate, these tickers will remain locked in a game of tug-of-war between buyers and sellers who are not especially interested in these real company fundamentals.

In other words, long-term investors waiting for the best bargain price may not want to jump in just yet. Better to be a little late in buying a rebound than too early.

This article represents the opinion of the writer, who may disagree with the Motley Fool premium advice service’s “official” recommendation position. We are motley! Questioning an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Also Read  Flames engulfed a Wisconsin anti-abortion nonprofit. Authorities are investigating it as Arson.




www.fool.com

Leave a Reply

Your email address will not be published. Required fields are marked *