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.)

Progressives learned long ago that you don’t have to win an argument if you can simply redefine the words.

Regardless of what’s happening in stocks, the same long bond can be a good buy for a retiree and an expensive obligation for everyone else.

The same uncertainty driving investors out of speculative assets is sending them toward dollars and Treasury securities.

Behind the drama unfolding at Nvidia, Big Tech is borrowing to keep the AI buildout chugging along just as the Treasury needs trillions.

Progressives learned long ago that you don’t have to win an argument if you can simply redefine the words.

Regardless of what’s happening in stocks, the same long bond can be a good buy for a retiree and an expensive obligation for everyone else.

The same uncertainty driving investors out of speculative assets is sending them toward dollars and Treasury securities.

Behind the drama unfolding at Nvidia, Big Tech is borrowing to keep the AI buildout chugging along just as the Treasury needs trillions.