Attack of the Memes, Day 2

Yesterday, on social media I commented, “I did not have ‘once again spend much of the day discussing $GME’ on my agenda for today.”  For better or worse, it remains on my agenda for today. 

Don’t get me wrong.  I really enjoy discussing market-related oddities, and a periodic bout of meme-stock madness is one of them.  I also like the fact that so many people feel that my perspective might be useful in understanding what occurs when a stock rockets higher seemingly out of nowhere.  It’s tough trying to parse rational explanations when markets do irrational things, but I like to think that I try my best.

That is why I think we did a good job yesterday in explaining why the jump in GameStop (GME) was not as “out of the blue” as it might have seemed.  With 20/20 hindsight, we noted how the volumes and open interest in what were then far out of the money calls had expanded exponentially.  The stage was set for an explosive rally, and the social media post from “Roaring Kitty” was perfectly timed to capitalize on it.

After further thought, it occurs to me that the stage had really been set last month, when Trump Media & Technology Group (DJT) exhibited its own meme-like activity.  We even entitled our piece “Meme Stocks: The Sequel.”  The ferocious rally in DJT occurred for different reasons, conflating politics with markets, but it was “proof of concept” that a re-run in the “traditional” meme stocks might be in order.

Think of it this way: I happened upon the movie “Swingers” recently.  Besides being the launching point for several huge Hollywood careers, it brought around a resurgent interest in cocktail culture and swing music.  Various musical acts either returned to prominence or found new fame in the film’s aftermath (Big Bad Voodoo Daddy, for example), only to return to relative obscurity afterwards.  The movie signaled to those bands that the time was ripe for them, and I believe that DJT’s rally did the same for GME and friends.

I am a bit surprised that the rallies have continued apace today.  I am certainly not the best interpreter of memes, but I do know my old movies.  So when Roaring Kitty followed up with the end of “Ferris Bueller’s Day Off”, when Ferris says, “You’re still here? It’s over. Go home. Go”, I took that to mean that he had taken his profits and was telling others to do the same.   What do I know?  The stock continued to rally this morning, though by midday it was off its highs.  And AMC signaled that its stock was a better sale than a buy, when it sold 72.5 million shares yesterday.   So sure, by all means it was worth double that this morning.  (Though it is now up “only” 25%).

I know that many of you are drawn to high volume/high volatility situations.  GME is now among the most actively traded stocks at IBKR, and I understand why.  I understand the allure.  Please make sure you understand the risk/reward!