Reddit Traders Active on Meme Stocks Again; Moves Less Volatile

The end of January had “meme stocks” and the popular Reddit forum r/wallstreetbets in the spotlight, as a large number of retail traders started to aggressively buy heavily shorted stocks, pushing valuations higher and squeezing several hedge funds out of the market.

Although the names involved were those of companies with low market capitalization, the major short squeeze eventually started to weigh on the broader US stock market, as financial companies were forced to sell the best-performing stocks in order to cover their losses.

Reddit online traders

GME rises again – buyers can’t keep valuations near highs

Meme stocks like GameStop (GME), AMC Entertainment, Nokia, and Churchill Capital Corp eventually started dropping as higher valuations could not be sustained for more than a few days. However, just recently there was a new rise in buying interest, especially in GME, following the appointment of Ryan Cohen as a board member.

A sudden rise in the stock price from $40 to $180 occurred within 3 days, still a move that’s several times smaller when compared to what had happened between January 19th and January 29th. Due to lower volatility, there were no trading halts on either of the meme stocks and at the same time, no influence on the larger publicly-listed companies.

Reduced spillover effects

For the time being, there are no major spillover effects when it comes to trading forex in South Africa, to volatility, and to major stock market indices, suggesting the market’s attention has shifted away from meme stocks. The spotlight is now on rising interest rates, new US stimulus, and the broad reopening narrative, given the COVID-19 vaccination process continues to improve.

Several days ago, the famous investor Warren Buffett released his annual shareholder letter and although there were no direct mentions of meme stocks, the first key passage is relevant to those who want to know his opinion on the speculative frenzy:

“Investing illusions can continue for a surprisingly long time. Wall Street loves the fees that deal-making generates, and the press loves the stories that colorful promoters provide. At a point, also, the soaring price of a promoted stock can itself become the 'proof' that an illusion is reality.

Eventually, of course, the party ends, and many business 'emperors' are found to have no clothes."

Retail traders still using online trading tips

Many famous investors and traders continue to warn against rapidly rising stock prices, yet the reality is that a significant share of retail traders joining the market for the first time are looking for trading tips online, a phenomenon that can lead to accumulation of orders within a short timeframe, and eventually to a surge in valuations.

Regardless of critics, retail traders have proven a great deal of strength when operating in cohorts, something that larger institutional players are already starting to take into account. There is an ETF tracking meme stocks and online coverage of this topic continues to spark interest, communicating that the massive surge witnessed at the end of January can weigh in on the market’s psychology for an extended period of time.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes