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The 'Outlier Event' of Gamestop and Amc Meme Madness

May 19, 2024
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This week, shares of GameStop Corp. and AMC Entertainment Holdings Inc. experienced significant volatility after Keith Gill, also known as "Roaring Kitty," made a notable return to social media following a three-year break. Gill, a pivotal figure in the 2021 meme-stock phenomenon, reignited interest in these stocks through a series of posts on X (formerly Twitter).

Initially, GameStop (GME) and AMC (AMC) saw their shares soar on Monday and Tuesday. However, by Wednesday, GameStop began to lose momentum, ending Thursday's session down 30% and declining further by 19.7% on Friday. Over three trading sessions, GameStop's shares dropped 54.4%, marking their worst performance since early February 2021, when they plummeted by 76.22%, according to Dow Jones Market Data.

AMC shares mirrored GameStop's trajectory, surging early in the week but tumbling on Wednesday and Thursday, ending Friday down 5.2%.

Experts have been weighing in on the meme-stock rally. Dan Raju, CEO of Tradier, described GameStop's surge as a "short-term baseless frenzy" on Monday. Cory Mitchell, an analyst at Trading.biz, characterized AMC's rise as "just pure hype" on Wednesday. This week's rally evoked memories of the 2021 meme-stock craze, where the "gamification" of trading took center stage.

Other heavily shorted stocks also got caught up in this meme-stock wave, including SunPower Corp. (SPWR), Maxeon Solar Technologies Ltd. (MAXN), MicroCloud Hologram Inc. (HOLO), Children’s Place Inc. (PLCE), Beyond Meat Inc. (BYND), Spirit Airlines Inc. (SAVE), and Plug Power Inc. (PLUG).

According to data, these stocks have significant short interest, making them prime targets for sudden trading activity.

Stephanie Price, an analyst at CIBC Capital Markets, noted in a Thursday report that the market seemed to revisit 2021 when GameStop shares surged by as much as 119% on Monday morning following a tweet from Gill. Price highlighted that rising interest rates had subdued the meme-stock craze over the past two years, with Gill's Twitter account remaining silent since his 2021 congressional testimony.

Price added that Gill's return has led many to speculate whether retail traders are once again targeting struggling companies and heavily shorted stocks.

Adding a twist to the week’s events, GameStop announced a quarterly profit and sales warning on Friday morning, along with plans to issue more shares. Wedbush Securities viewed this share issuance positively, raising its price target for GameStop to $7 from $5.60. Analyst Michael Pachter noted, "When life gives you lemons, file a shelf," implying that GameStop is wisely taking advantage of the recent spike in its share price to issue shares at a premium, thereby strengthening its financial reserves amid ongoing efforts to refocus its business and address operating losses.

Overall, this week's activity reflects the unpredictable nature of meme stocks, driven by social media influences and retail trader sentiment. While initial surges can lead to significant gains, they are often followed by sharp declines, highlighting the inherent volatility and speculative nature of these investments. The renewed interest in heavily shorted stocks suggests that retail traders are still willing to take risks on companies with challenging prospects, hoping to capitalize on short-term price movements despite the broader market’s more cautious stance.

Adan Harris
Managing Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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