Last week, user Roaring Kitty’s first tweet in three years seemingly set off a buying frenzy for the meme stocks of 2021. Back then, Gamestop (GME) and AMC Entertainment (AMC) garnered the most attention. Users collectively organized a short squeeze in Reddit’s subgroup, WallStreetBets.
This time is markedly different. Even though the subgroup has 15.5 million registered users, only around 10,000 – 15,000 are now active at any one time. This suggests that last week’s trades are meme-inspired GME stock traded as high as $65 and AMC stock to as high as $12. Reddit users did not lead this unhealthy rally. Needless to say, AMC ended last week at $4.40, while GME stock closed at $22.21.
Both firms took advantage of the irrational price spike by selling shares to raise cash. AMC CEO Adam Aron completed the sale of $250 million last Monday. Later that week, Gamestop sold 45 million shares.
The volatility from the unexpected short squeeze is a reminder to bears that betting against broken companies is too risky. The Dow Jones and S&P 500 (SPY) both hovered at all-time highs. In the absence of sellers, bears are better off holding cash instead. They should wait for the short float percentage in those firms to decline first.
The market is too frothy and overbought to bet against it.