Barron’s and Fortune published articles that praise the method of investing in meme stocks. These are contrarian indicators. All their examples of what went well are now falling apart.
Fortune published “What will become the next big meme stock?” Reddit’s WallStreetBets chatter offers clues” on June 28. Barron’s published, July 12, “Meme Stock Trade far from Over,” is a significant contrarian indicator. “Meme Stocks Defy Gravity” is the cover title. It’s placed above a drawing of rocket ships that contain meme stock symbols. Wall Street has not responded to the boom in retail day-trading. The additional headline reads, “The Market’s Meme Generation – Half a year later, a young retail day-trading boom has begun to show signs of staying power.” The stock charts show that the 6-month description represents a few days or hours of rocket ignition.
The meme stock forecast: A stormy outlook with a threatening outlook
These are the ten meme stocks that were discussed in Barron’s and Fortune’s articles. Notable is the stock’s dramatic decline from its 52 week high caused by the meme investor-caused spike. Remember that a 50% drop means a 100% increase is needed to return to the peak.
What makes meme stock ownership so “dangerous?”
This is a difficult time for meme stock investors who still believe in Barron’s false description. They have an illusion of being cheap, despite the stock’s falling value. Many stores are still far above the level of the original action.
Worse, they all have negative fundamentals and offer no support at the bottom. This is because the initial success of the meme-movement was due to buying stocks with high short interest that were beaten down. Wall Street has always been resilient, even though there have been instances when a hedge fund was taken to the cleaners. Stock charts often show spikes that are quickly reversed, sometimes within the same day. This was not Wall Street’s trap but novice investors who believed Reddit’s main statement: Stay together (that is to buy, don’t sell, then purchase more). This was the view of the meme movement, which claimed that it could control the stock market or at least the trading of deadbeat stocks by doing so.
What has been considered a new paradigm is stock manipulation by groupthink that takes place in low-quality stocks? For more information and examples, see Stock Market Manipulation.
What about GameStop or AMC Entertainment accepting the meme investors? Yes. Why not? Holding and buying shares was helping companies get out of financial difficulties. Even newly issued shares were bought by meme stock investors.
What does this mean for today’s meme-holders, and where do they go? We look at each other, hoping that the weak sellers will be gone and a new run can start. It won’t.
An excellent analogy is found in the last scenes of Lawrence Of Arabia. After Lawrence’s victory over the loose collection of Arab tribes defeated them, cohesion gave place to individualistic interests. As everyone left, the “movement,” as it was called, collapsed.
Bottom line: The meme movement has exploded, so don’t get too excited
Like previous fads, diehards continue to follow their inept leaders, even as others move on. The Wall Street Journal’s June 21 article “ETFs Join Bandwagon Of Meme Stocks” provided a good description of the reality. (Underlining is my.)
“Some new exchange-traded funds are dabbling with meme stocks, chasing a return to pull in assets… Many stock pickers have mostly sat out this mania, while some Wall Street analysts… called the dramatic rise in share prices dangerous.
“But, a few actively managed ETFs try to surf the retail meme stock mania, betting on their ability to get out of time once the rally finally fizzles ….”
This gamble is a big mistake in investing: Selling at the top (which involves spotting the falloff of buying and then beating all other shareholders to the selling punch). Follow Bernard Baruch’s wise advice: “I made my fortune by selling too quickly.”