The recent runup in Meme stocks, pushed by the Reddit crowd, has turned Wall Street upside down and is something to sit up and take notice of. Many pros consider the recent price action a silly phenomena to be dismissed, but we think the opposite.
Very recently, the Reddit crowd bought a lot of AMC Entertainment Holdings (NYSE:AMC), forcing shorts to cover, which drove AMC from about 14 to 70 in the past few weeks. That’s not a bad run in 7 trading days.
Most serious professional players look at the recent performance as sheer folly (sending lambs to be slaughtered) and a perfect setup to destroy the novices/day traders. In fact, many money management firms will not allow their reps to recommend Meme stocks to their clients. Most pros look at these Meme stocks as worthless and short them based on their fundamentals.
Now look at this comment by the CEO of AMC:
“Bringing in an additional $587.4 million of new equity on top of the $658.5 million already raised this quarter results in a total equity raise in the second quarter of $1.246 billion, substantially strengthening and improving AMC’s balance sheet, providing valuable flexibility to respond to potential challenges and capitalize on attractive opportunities in the future.”
The takeaway is the Reddit crowd, by pushing beaten down, heavily shorted, stocks, are shifting the fundamentals. In AMC’s case, it was able to raise over a billion dollars this quarter alone and adjust its business model.
Another interesting takeaway, if the short squeeze in GameStop (NYSE:GME) was a fluke and insanely overvalued, why is it now still sitting at $237 a share, or over 10x where it started this year?
The game is changing, and short-sellers are on notice, especially when they ignore or manipulate SEC and clearing regulations. The bottom line is that if you have a risk management process like we practice at MarketGauge, it is all opportunity.
This past week, Mish did a full-on training segment about how to trade MEME stocks using an immensely powerful indicator that we used on the trading floor—the opening range—check it out here:
The week’s market highlights:
- Risk Gauges remain neutral
- Accumulation days vs. distribution days has improved overall, but the Dow Jones has had 0 accumulation days over the past two weeks
- Volatility—iPath® Series B S&P 500® VIX Short-Term Futures™ ETN (NYSE:VXX)—was trading near multi-year lows; it is still not oversold which is bullish
- McClellan Oscillator is positive for SPDR® S&P 500 (NYSE:SPY), indicating positive market internals
- Despite inflationary pressures, interest rates moved sharply lower confirming a breakout from a multi-month base
- High-yield debt has been underperforming US Treasuries—iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), a risk-off indication
- Growth stocks—Vanguard Growth Index Fund ETF Shares (NYSE:VUG)—seemed to be reassuming leadership over value stocks—Vanguard Value Index Fund ETF Shares (NYSE:VTV)
- Although Retail—SPDR® S&P Retail ETF (NYSE:XRT)—was the leading sector of the Modern Family with a bullish stack still present, momentum broke under the 200-dma according to Real Motion
- Semiconductors—VanEck Vectors Semiconductor ETF (NASDAQ:SMH—were in a long-term compression formation
- Biotech—iShares NASDAQ Biotechnology ETF (NASDAQ:IBB—showed an impressive breakout and changed to bullish after bouncing off its 200-DMA, but it might be subject to some mean reversion as its running rich
- Clean Energy—Invesco WilderHill Clean Energy ETF (NYSE:PBW) and Solar—Invesco Solar ETF (NYSE:TAN)—were last week’s strongest trending sectors, while Oil Services—VanEck Vectors Oil Services ETF (NYSE:OIH)—was the week’s worst performer
- Inflationary pressures are keeping Emerging Markets—iShares MSCI Emerging Markets ETF (NYSE:EEM)—steady on a relative basis to SPY
- Gold—SPDR® Gold Shares (NYSE:GLD)—broke down relative to SPY, while Oil—United States Oil Fund, LP (NYSE:USO) and Natural Gas—United States Natural Gas Fund, LP (NYSE:UNG)—continued their trajectory to the upside as the US economy reopens
- Lumber had its largest weekly drop ever, down 18% and still correcting after hitting all-time highs in early May
Crypto update
- El Salvador became the first country in the world to fully adopt and legalize Bitcoin as a national currency, even going so far as to mandate all businesses in the country to accept the cryptocurrency. This has had immediate ripple effects in the region already, as officials from Mexico, Paraguay, and Cuba have indicated the high likelihood for their countries to adopt Bitcoin soon.
- Cryptocurrency sentiment is conflicted, as China continues to crackdown on mining and trading while Europe and the majority of the Western Hemisphere see further adoption by governments and largescale institutions each day.
- News events have had a dwindling effect on the price volatility of the crypto market as of late, with BTC trading within a 4% price range on Friday despite a lot of crypto news.
- Bitcoin has spent the last week ranging from $32,000 to $38,000, creating a powerful compression zone
- Blockchain data shows consolidation in the BTC market because of long-term owners continuing to accumulate the currency, while short-term holders are selling. The continual support of ‘whales’ has provided a major line of support at the recent low of $31,000/BTC, not allowing price to break below crucial levels.
- Ethereum and other major altcoins have seen a divergence from their correlation to Bitcoin, as ETH has continually trended down with a 7-day change around -9%, while BTC has seen a 7-day change of roughly .5%. This is a reminder that strength in the crypto industry typically follows the biggest name.
- If BTC can gain enough momentum from continual adoption and positive news, expect to see ETH and other popular altcoins follow.