S Are Meme Stocks Losing Steam?

meme stocks

AMC Entertainment (AMC) and GameStop (GME) have become a famous pair of stocks that have been credited for starting this whole "meme stocks" trend. Unless you've been living under a rock, you know what I'm talking about. But just in case you're not familiar and are asking what meme stocks are, I'll give a brief explanation. The idea behind memes, in general, is that they are ironic jokes shown in picture or gif form. Similarly, meme stocks or "stonks" are ones that shouldn't be doing what they're doing because fundamentals aren't matching up to the market activity in the stocks. This is where we see GME, AMC, and now many others falling under this umbrella.

The last few weeks, however, haven't been great for the broader meme stock trend. In fact, on July 8th, AMC stock (the bellwether of the bunch right now) hit lows the stock hadn't seen in weeks. Similarly, Blackberry (BB), Express (EXPR), Bed, Bath & Beyond (BBBY), Clover Health (CLOV), and Sundial Growers (SNDL) have experienced their own bout of selling pressure. Does this mean meme stonks are done? Is the trend completely over? Or is all of this just FUD from the hedgies?

Something to keep in mind is that there are millions of new traders adding to the market's volume right now. In fact, if you look at some of the top stock market stats out there, during the first half of 2021, some 10 million new accounts came online across brokerage accounts. According to those same stats, that figure is equal to all of the new accounts created in 2020. Something else to consider is that according to Bloomberg Intelligence, retail trading accounts for more than even hedge fund trading does.

Why is this something to keep in mind? Despite the average retail trader not having as much capital as a hedge fund, when banded together, we've already seen the strength of the retail wave. It was responsible for the big surges in stocks like AMC and GME earlier in the year. The importance of knowing the current playing field includes 10s of millions of new traders is that a single way of retail-fueled trading isn't and hasn't been the case. Have there been lulls? Yes, but has the faucet turned completely off? No, and after watching trading this week, that faucet appears to be back on especially for some of the go-to meme stocks.

The Next Act For Meme Stocks

Could this be the next act for meme stocks? Well, if you look at the trading action right now, Thursday's (7/8) bounce appears to show a significant level of trading momentum favoring bullish buying. Shares of AMC bounced back more than 20% from their intraday lows. GameStop stock mirrored a similar rebound, though not as aggressive as AMC. Its shares bounced back by just over 6% from Thursday's lows. Meanwhile, other meme stocks like Express saw a 13% rebound. It's clear that retail traders saw this pullback as a dip-buying opportunity but the real trend is yet to be seen in my opinion. This could be the next act for these stocks but at what levels? Will it take these back to their previously recorded all-time highs from earlier in the year? A lot of that will have to do with how much cash is left in the till.

I took a look at Nasdaq data provided by NasdaqTrader, which shows some interesting details about the daily cash flow in the market right now. For instance, year-to-date from January 4, 2021, to the present, the average daily dollar volume across Nasdaq issuers alone sits just shy of $250 billion. The last month of trading between June 8th and July 8th shows that cash flow is light. How light? That figure shows to be roughly $225 billion, which is a 9% decline compared to the year-to-date, daily average. Meanwhile, even in light of the surge that stonks like AMC experienced this week, daily trading volume on the stock remains lower than where they were at back in May and June.

Down But Not Out

Volumes are down but I wouldn't count out any retail breakouts right now. I've written a lot about penny stocks in the past. These are some of the most volatile to trade on a daily basis. What's more, you're likely to find at least a few that are exploding to record highs on wild volume, daily. For instance, Nova Lifestyle Inc. (NVFY) was the late big penny stock mover today. Shares of the now-former penny stock jumped from under $3.50 to over $7 during post-market trading. Will this become "the next AMC" to grace the market? That's to be seen. However, what I can say is that there wasn't any news to pair with the move so it may have been a complete technical-based move. These have a tendency of jumping big but pulling back just as quickly. Also, considering that the company is known for moves like this, it wouldn't surprise me to see another pop and drop happen. That's what the case was back in March.

Needless to say, no matter what you're trading, it's important to have a strategy to make money with stocks; not just HODL forever. The bottom line is that unless the stock you hold has a dividend, the only way to actually make money with it is to sell it for a profit.  You can always buy back in and if you made money on the way up, you've got that much more cash at your disposal. For now, I think the meme stock trend is here to say and if you know how to navigate volatility, it may be a trend to track this year.

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William K. 10 months ago Member's comment

Thanks for the explanations. As for the question about "losing steam", keep in mind that all fads have a point of tapering off for a while. That is how fads work. A lot like a stampede of wild cattle, and just as intellectually motivated. That large crowd who have entered the game are still, I hope, learning what it is all about and how it works. Probably the single biggest discovery is that to sell, one must have buyers who are willing and able to pay the asked price.. That is the most brutal obstruction to the get-rich-quick agenda. It will be quite interesting to see what happens as "groupthink" and mob hysteria driven by instant communications come to play even more than they have dine recently.