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In Wall Street, there is kind of notion that you cannot fight the retail investors. This concept is confirmed again since the bottom of Liberation Day. Because retail investors are the main driving force of the reversal of equity markets, with institutional investors always conservative and keeping on the sideline.
Right now the enthusiasm of retail investors is playing out in an another way, that is chasing MEME stocks. Recent stock market is signaling that MEME stocks trade is making a comeback.
Meme stock that investors are familiar with is Gamestop, which had a wild ride in 2021. Right now the new cohort of meme stocks include GoPro, American Eagle, Krispy Kreme, Kohl’s as well as Opendoor that have seen wild trading recently.
The meme cohort appeared to be focused on Kohl’s, with its shares closing up nearly 38% on Jul 22. Half of Kohl’s float shares are sold short. Opendoor, which had been trading mostly under $1 this year, hit a high of $4.97 during trading session of Jul 21 and closed the day at $3.21. Its meteoric rally pushed the stock up by 400% in July alone even with the pullback.
So what is fueling this surge of Meme stocks ? Is this a sign of renewed retail confidence or somewhat overheating? There are some signs showing that individual investors are taking on every more risks in searching returns, because they believe risks equal returns now, not potential for loss.
From technical and fundamental perspective, what makes a good meme stock? It requires high short interest, low price to prior bump, good name recognition, reasonably active option as well as solid earnings. Trading Meme stocks is not a bad thing, it does not mean the disaster is around the corner. But what investors should not do is to chase the next MEME stock on the open, which is the worst trade. Meanwhile retail investors should examine that have you got too heavily over-weighted in certain names or risky type of stocks, also identify risk-seeking behavior, such as increasing attention paid to high-volatility, high-volume stocks, the return of SPACs and record margin debt, in order to make sure your account is safe enough given the margin level what we have seen out there.Complete digital access to quality Glebors financial topic with expert analysis from industry leaders.
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