Weekly Newsletter - Week of 5.30.2021
Revenge of the Meme Stocks
Another wild week of trading for the self-titled ‘Meme Stocks’. If you recall, GameStop was the first of these stocks to soar, but it certainly hasn’t been the only stock trading at parabolic multiples. The biggest concern with these type of stocks is their soaring share prices have little, if anything, to do with their business model or any fundamental changes to the company.
GameStop: 25.57%
AMC: 116.23%
BlackBerry: 18.89%
Once again, these massive gains seem to be fueled by the Reddit community WallStreetBets (WSB). Although the ‘retail trader’ is still the clear minority in terms of account size, traders are actively using derivates and margin to magnify gains and amplify their ability to move stock prices quickly. All this coupled with the power of social media leads to a force to be reckoned with and we continue to see the impact of a coordinated effort to drive up the price of a handful of stocks.
Cramer Weighs-In
Also, this week, famed personality and legendary investor, Jim Cramer shined another spotlight on WSB and the meme stock sector further putting these stocks in the public eye. He applauded the efforts of WSB and mentioned other names highly susceptible to another coordinated effort. Cramer mentioned Beyond Meat and Virgin Galactic as two other possible stocks ripe with opportunity- each saw massive gains after his comments.
Remember, underneath all the frothiness of these stocks is an inflated short interest ratio. As we recently discussed in one of our blogs, short-interest can be used to measure overall bearishness in a stock. High short-interest can indicate that institutions have made investments that assume a decrease in price is imminent. As hedge funds continue to short, there will continue to be wild swings in volatility as retail investor’s aim for a short-squeeze.
Investors Anxiously Await Infrastructure Bill
Investors continue to anxiously await any new details on the proposed Infrastructure Bill. Despite the consensus that upgrading infrastructure will add jobs and help grow the economy, divisiveness remains on how to complete the upgrade, what should be included, and what the price tag should be. With the debt levels continuing to swell to unprecedented levels, the Infrastructure bill will continue to drive immediate sentiment in the market.
Rough Month for Crypto
As we discussed in last week’s newsletter, energy consumption and China’s regulatory policy are just the latest headwinds working against Bitcoin and all of crypto- as of this writing, BTC is down 43% from highs. This drawdown is on pace to become the second largest decline in Bitcoin’s history. Despite the massive selloff we’ve been witnessing, blockchain analytics provided some interesting datapoints this week. It appears the recent selling has been driven by new Bitcoin investors who were panic selling. Many of the coins that were recently sold, were held by new investors trading Bitcoin for the first time. Conversely, institutions buying of Bitcoin surged this past month. A growing sign of the long-term confidence in crypto and its prospects. With one of the worst months on record for crypto now in the rear-view, we’ll be looking for signs of new cryptocurrency momentum as we head into June.