Meme mania returns. GameStop and AMC soar

New York
CNN Business

Monkeys from Reddit, rejoice! Shares of meme stock Darling GameStop (GME) rose 10% on Thursday, forcing the trades to be halted several times due to volatility. But there was no specific news to justify or explain the big pop.

Other meme stocks, including AMC (AMC), Bed Bath & Beyond (BBBY), and Beyond Meat (BYND), also moved higher on Thursday. AMC (AMC) rose nearly 10%, a much bigger gain than rival movie theater stocks Cinemark (CNK) and IMAX (IMAX).

Bed Bath & Beyond rose about 2%. Beyond Meat fell 20% on the opening bell after weak earnings results, but the plant-based food giant reversed course and briefly moved higher. It ended the day with just 4%.

Most of these stocks, favorites of traders on Reddit and other social media platforms, have reduced their early gains as the day has gone on, and they have all fallen along with the broader market this year. GameStop is still down about 40% in 2022 despite Thursday’s pop, while AMC is down nearly 60% over the same period.

Still, many fans of these companies have remained loyal to the stock. And there are now several ETFs dedicated to meme stocks, such as the Roundhill MEME, FOMO (for fear of missing out), and VanEck Social Sentiment funds.

AMC, in particular, has an avid fan base, who often use Twitter hashtags such as #AMCNEVERLEAVING and #AMCtothemoon to promote the stock. But some investors have bet against AMC over concerns that the company has been taking too many risks lately.

The theater chain now plans to sell AMC popcorn outside of theaters. It has also made strides in cryptocurrencies and even an investment in a precious metal mine.

A possible reason that AMC, GameStop and other meme stocks are rising? They may get a lift from what is known as a short squeeze.

Many shortsellers — investors who borrow and sell stocks in hopes of buying them back at a lower price — are betting big against these meme stocks.

However, it is a very risky strategy. If a shorted stock rises relative to the price the short seller bought it, the investor could lose a lot of money.

As highly shorted stocks rise, short sellers may be forced to quickly hedge their positions by buying back the stock to avoid even greater losses. This short coverage can feed itself, leading to a “squeeze” that pushes the stock price higher and higher.

Investors in AMC and other meme stocks even have an acronym to describe this phenomenon: MOASS, which stands for Mother of All Short Squeezes.

Some would argue that short squeezes are not a good reason for a stock to rise because they have little to do with a company’s fundamentals, such as sales and earnings.

But others note that individual investors should be able to fight back against larger institutional companies and hedge funds that may wrongly target a stock and go short.

“Fair markets are free markets,” said Ryan Cohen, the co-founder of Chewy (CHWY) who is now GameStop chairman and its largest shareholder, tweeted on Thursday. Cohen’s RC Ventures also has a large stake in Bed Bath & Beyond.

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