After crashing earlier this year, a slew of so-called meme stocks skyrocketed again Wednesday as individual investors remounted an effort to pump up the prices of Wall Street’s most heavily shorted companies—prompting experts to warn that the saga pinning institutional investors against Reddit traders could end badly.
Headlining the recent resurgence among so-called meme stocks, shares of AMC spiked as much as 40% Wednesday and have surged a staggering 314% over the past month, as heightened options activity and increasing short interest in the stock help retail traders squeeze institutional investors betting on a decline out of their risky bets.
Meanwhile, struggling brick-and-mortar retailer Bed Bath & Beyond is soaring nearly 51% Wednesday as traders on Reddit’s r/WallStreetBets discussion board tout that the stock’s short interest has climbed to nearly twice the level of fellow meme-stock GameStop, which is up about 3% Wednesday and 60% in the past month.
In similar fashion, shares of former phone-maker BlackBerry surged as much as 15% Wednesday and have skyrocketed nearly 55% in the past month as retail hype picks up now that short interest has hit a nearly four-year high.
Other resurgent meme stocks embroiled in the latest frenzy include Beyond Meat and Koss Corporation, which have soared nearly 40% apiece in recent weeks.
“Right now, the majority of Wall Street is on standby until Friday’s employment report, so meme-stock mania and cryptocurrency trading could have little resistance,” Edward Moya, a senior market analyst at Oanda, wrote in a Wednesday email, pointing to “joke” token dogecoin’s meteoric same-day rise as a sign of further unabated market mayhem. “The retail force behind this movement is still strong, so it is anyone’s guess how much larger this bubble can grow.”
“Although we have seen some exiting of positions throughout the year, the majority of short sellers have been happy to sit on significant paper losses in the hope that retail investors will blink first and the losses won’t be realised,” Ortex analysts wrote in a Wednesday note. “This now looks like a flawed strategy.”
The recent meme stock rise follows a similar surge in January, when activist investors perched on Reddit’s r/WallStreetBets board pumped struggling firms like GameStop and BlackBerry in a bid to hurt short-sellers. “There’s a certain vigilante mindset amongst those traders being drawn into this social-media frenzy to pump certain stocks,” Nigel Green, the CEO of $12 billion advisory Devere Group, said in a Friday email, adding that “extreme caution should be exercised before joining stock frenzies of such nature.” Meme stocks have been incredibly volatile this year, with most crashing in late January once institutional investors piled out of their short bets after weeks of meteoric gains. Thus far, only AMC, which has also benefitted from businesses reopening, has recouped those losses.
What To Watch For
It’s unclear how long it may be before short interest once again wanes, but some analysts have said the market could sour again once the Federal Reserve indicates it will ease up on its accommodative policy, which has effectively facilitated high asset valuations by injecting unprecedented amounts of cash into the economy. That could happen as soon as June, when Fed officials meet again to discuss policy changes.
In another sign of frenzied investing, shares of Mudrick Capital Acquisition Corporation II plunged 15% Tuesday after a slew of Reddit traders started placing bearish short bets on the stock following a Bloomberg report its namesake sponsor cashed out of its AMC stake because shares were “overvalued.”