GameStop And AMC – The Last Meme-Stocks Standing Are Ready For Final Collapse
Last July, the meme-stock implosion had started, even as Barron’s and Fortune listed a combined ten issues as attractive buys (see “The Meme Stock Movement Is Imploding – Don’t Be The Last One Out”). Since then, eight have fallen further, wiping out all gains or more.
GameStop and AMC Entertainment also have dropped and reduced gains significantly. However, each is still above its initial, lower share price. Judging by the Reddit commentary, the meme-stock troops still have hopes that last year’s excitement will return.
This is an excellent setup for the stocks to suffer a meltdown. Each faces a final drop that has no barriers to soften the decline. Coincidentally, they have arrived at the same point as shown in the graph below.
All that’s left is for the hangers-on (i.e., the last ones to sell) to lose hope (or to get a margin call or to have their call options fall to cents on the dollar).
Making the environment conducive for meltdowns, 2021 speculation is dying elsewhere
Three other 2021 easy-money speculations have been collapsing:
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Biotech IPOs – Where ugly downtrends are commonplace, negative earnings are everywhere, and 90% are now selling 50% to 95% below their 2021 highs
Story stocks – Where once a hot story was the only fundamental needed – Story stocks’ low sales and negative earnings seemingly indicated that investors were getting in on the ground floor (almost half of the 3000+ Nasdaq company stocks have negative earnings)
SPACs (Special Purpose Acquisition Companies) – Deal-hyped spurts followed by collapses became common as investors learned that the financial contrivances did not favor them. Instead, they rewarded “sponsors” (AKA insiders) with about 20% of the stock at a very low price when a deal (any deal) was consummated. Thus, investors provided almost 100% of the funds but received only 80% of the deal stock. The one loophole: Investors can ask for their money back just prior to that consummation. Most SPACs now sell at or just below their IPO prices (usually $10).
The bottom line – Today’s market trend is solidly against easy-money speculation
Despite the new age commentary offered last year, common sense and reality are making a comeback. Additionally, the environment is getting more challenging as the Federal Reserve reverses its decade+ control of interest rates.
Therefore, look for changes from the past years’ investing strategies, and prepare for decisions to move ahead and avoid reversals. One alteration could be a bit earth shattering: A move out of tech-heavy index funds. The coming challenges could reward active managers searching out individual companies that offer good opportunities. It wouldn’t be the first time that such a shift happened. If it does, now is certainly the ground floor for investors.