The Latest Meme Stock Craze Is About Out of Gas

In 2021, it was AMC and GameStop.

This year, it’s Kohl’s and GoPro.

They’re called meme stocks, as they’re driven by posts on Reddit’s WallStreetBets.

And bets they are.

While meme stocks sound innocuous, there is a critical factor that causes these names to get sudden interest from retail investors: a high level of short interest.

After all, if you’re short a stock and it starts to rise, you start to lose money on the trade.

That means if investors can engineer a move higher in a heavily-shorted stock, a squeeze could trigger as shorts buy to close.

That’s why heavily-shorted stocks, often unprofitable has-beens in the business world, have periods of strong performance.

That’s been the case the past few months:

Turn Your Images On

Heavily shorted stocks have outperformed the past few months as the market has rebounded

This outperfomrance in stocks with high short interest suggests that the meme trade is just about played out – and that investors looking to make a quick buck following a few posts on Reddit may be in for a rude awakening.

The rise of meme stocks also suggests that traders are looking for quick moves that they can’t get in the big tech names following their multi-month rally.

It’s not a sign that the markets will crash, but another hint that stocks are overheated and due for a necessary pullback.

Don’t make a new leveraged trade right now – take any leveraged trade you have off the table.

~ Addison

P.S. As always, your reader feedback is welcome: feedback@greyswanfraternity.com (We read all emails. Thanks in advance for your contribution.)

In 2021, it was AMC and GameStop.

This year, it’s Kohl’s and GoPro.

They’re called meme stocks, as they’re driven by posts on Reddit’s WallStreetBets.

And bets they are.

While meme stocks sound innocuous, there is a critical factor that causes these names to get sudden interest from retail investors: a high level of short interest.

After all, if you’re short a stock and it starts to rise, you start to lose money on the trade.

That means if investors can engineer a move higher in a heavily-shorted stock, a squeeze could trigger as shorts buy to close.

That’s why heavily-shorted stocks, often unprofitable has-beens in the business world, have periods of strong performance.

That’s been the case the past few months:

Turn Your Images On

Heavily shorted stocks have outperformed the past few months as the market has rebounded

The rise of meme stocks also suggests that traders are looking for quick moves that they can’t get in the big tech names following their multi-month rally.

It’s not a sign that the markets will crash, but another hint that stocks are overheated and due for a necessary pullback.

Don’t make a new leveraged trade right now – take any leveraged trade you have off the table.

~ Addison

P.S. As always, your reader feedback is welcome: feedback@greyswanfraternity.com (We read all emails. Thanks in advance for your contribution.)

As Bitcoin’s price has risen, it now trades for around $115,000, MicroStrategy’s stock has experienced an even greater parabolic rise.

Today the company, renamed Strategy, has a market cap of $103 billion – and investors have seen returns of more than 2,400% in a little over 5 years.

It’s one of the greatest growth stories of recent years and one that almost nobody could have seen coming.

For anyone who has ridden the MicroStrategy gravy train, congratulations.

And for those who missed it, I believe you could have a rare second chance.

Ultimately, as the one-two punch of “bad news equals good news on Wall Street” – inflation and employment data – kicked retail investors into gear, all three major indexes nudged to new record highs.

The S&P 500 is now up 31% in just five months, the third-largest five-month gain in the last two decades.

The old Wall Street saying, “The trend is your friend,” has played out beautifully over the past few months—at least in the stock market.

However, on Main Street, consumers are starting to show signs of tapping out. And as they do, the trend on Wall Street could reverse suddenly.

One source of alternative data showing consumer stress? Google search trends.

It’s one of those rare situations Warren Buffett would describe as “raining gold”… when all you have to do is step outside if you want to get rich. And it’s the type of setup Erez has built his entire investing career around.

The type of opportunity with the potential to make you a small fortune.