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The recent runup in "meme stocks" initiated by the Reddit crowd has turned Wall Street upside down, and this is something to sit up and take notice of. Many professionals consider the recent price action to be a silly phenomena to be dismissed, but we think the opposite.

Recently, the Reddit crowd bought many shares of AMC (AMC), forcing shorts to cover, which drove AMC from about $14 to around $50 in the past few weeks. That’s not a bad run.

Most professional players see the recent performance as sheer folly and a perfect setup to destroy the novices/day traders. In fact, many management firms will not allow their reps to recommend meme stocks to their clients. Most look at these stocks as worthless and simply short them based on their fundamentals.

Look at this comment by the CEO of AMC:

“Bringing in an additional $587.4 million of new equity on top of the $658.5 million already raised this quarter results in a total equity raise in the second quarter of $1.246 billion, substantially strengthening and improving AMC’s balance sheet, providing valuable flexibility to respond to potential challenges and capitalize on attractive opportunities in the future.”

The takeaway is that the Reddit crowd are shifting the fundamentals by pushing beaten down heavily-shorted stocks. In AMC’s case, it was able to raise over a billion dollars this quarter alone and adjust its business model.

Another interesting takeaway is: if the short squeeze in GameStop (GME) was a fluke and wildly overvalued, why is it still sitting at around $233 a share, or over 10x where it started this year?

The game is changing, and short-sellers are noticing. The bottom line is that if you have a risk management process like we practice, all of this looks like an opportunity.

This Week’s Market Highlights

• Risk gauges remain neutral.
• The ratio of accumulation days vs. distribution days has improved overall, but the Dow Jones has seen zero accumulation days over the past two weeks.
• The McClellan Oscillator is positive for SPY, indicating positive market internals.
• Despite inflationary pressures, interest rates moved sharply lower, thus confirming a breakout from a multi-month base.
• High-yield debt has been underperforming US Treasuries (TLT); a risk-off indicator.
• Growth stocks (VUG) seem to be assuming leadership over value stocks (VTV)
• Although retail (XRT) is the leading sector with a bullish stack still present, momentum has broken under the 200-DMA.
• Semiconductors (SMH) appear to be in a long-term compression formation.
• Biotech (IBB) has shown an impressive breakout and a shift to a bullish front after bouncing off its 200-DMA, but it might be subject to some mean reversion.
• Clean energy (PBW) and solar energy (TAN) were this week’s strongest trending sectors, while oil services (OIH) was this week’s worst performer.
• Inflationary pressures are keeping emerging markets (EEM) steady on a relative basis.
• Gold (GLD) broke down relative to SPY, while oil (USO) and natural gas (UNG) continued their trajectory to the upside as the US economy reopens.
• Lumber had its largest weekly drop ever, down 18% and still looking to correct after hitting all-time highs in early May.

Cryptocurrency Update

• El Salvador became the first country in the world to fully adopt and legalize Bitcoin (BITCOMP) as a national currency, even going so far as to mandate all businesses in the country to accept the cryptocurrency. This has had immediate ripple effects in the region already, as officials from Mexico, Paraguay, and Cuba have indicated the high likelihood for their countries to adopt Bitcoin soon.
• Cryptocurrency sentiment is conflicted, as China continues to crackdown on mining and trading while Europe and the majority of the Western Hemisphere see further adoption by governments and largescale institutions each day.
• News events have had a dwindling effect on the price volatility of the crypto market as of late, with BTC trading within a 4% price range this Friday despite a lot of crypto news.
• Bitcoin has spent the last week ranging from $32,000 to $38,000, creating a powerful compression zone.
• Blockchain data shows consolidation in the BTC market because of long-term owners continuing to accumulate the currency while short-term holders are selling. The continual support of ‘whales’ has provided a major line of support at the recent low of $31,000/BTC.
• Ethereum (ETH-X) and other major altcoins have seen a divergence from their correlation to Bitcoin, as ETH has continually trended down with a seven-day change around -9%, while BTC has seen a seven-day change of roughly .5%. This is a reminder that strength in the crypto industry typically follows the biggest name.
• If BTC can gain enough momentum from continual adoption and positive news, expect to see ETH and other popular altcoins follow.