Meme stocks saw a rise yesterday with names such as AMC and GME gaining 20% and 27% respectively during Tuesdays trading hours. Volume greatly increased, seeing more than double the usual volume compared to the 20 day average for AMC, and four times as much for GME.
What caused the demand?
There was no material news that was announced yesterday relating to the two stocks or any others that are grouped in “meme stocks”. Often factors such as short seller activity, options volume and social media spark the interest in these stocks.
Yesterday, it seems that options volume for both companies was the driving force, along with day traders jumping in on the momentum from past experiences of these rallies.
Covid and the re-opening of the tourism industry could be a factor that has helped AMC more specifically. Other tourism related stocks have started to see gains as people have more belief in the world going back to “normal” with the rollouts of Covid vaccines such as Moderna and Pfizer.
How long will it last?
From previous runs, we know that a meme stocks usually hold up for a few days before fading off. If they hold up once again, I can see AMC getting above $50 and GME to $240. The more gains the stocks make, the more interest will be created. But once people lose interest, the sell off will be quick as traders know there is no fundamental value in these companies.
Is it worth getting involved in meme stocks?
I think for less experienced traders, there’s more chance getting caught in the backside of the trade and being left with a big loss, so best to stay clear. But for experienced traders, there will be money to be made both long and short in the next few days.
The stocks are holding up in pre-market currently. GME is at $211.25 after hitting a high of $225 and a close of $210.29. AMC is at $45.50 in pre-market. It saw a high of over $48 yesterday and a close of $44.26.