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Just when you think the GameStop mania is a story from the past, meme stocks came back from the dead with a double-digit rally this week as avid investors re-piled into speculative assets and the market near record highs.
GameStop’s shares rose another 11% on Wednesday, increasing their earnings to over 30% this week. Another Reddit target, AMC Entertainment, gained 12% in morning trading, bringing its weekly surge to over 50%.
Strategists believe the recent surge came when these speculative assets and others became oversold. Last week, Bitcoin suffered a 30% one-day crash that terrified many on Wall Street, and the cryptocurrency made up for some of the week’s losses, but trading remains volatile.
Meanwhile, the stock market, which recently returned to record levels amid re-opened optimism, may have sparked another wave of animal spirits and pulled some investors back into the riskiest parts of the market.
“I believe the recovery of these thematic names depends on two components: the oversold conditions currently in GME & AMC due to the Bitcoin withdrawal and profit-taking,” said Jeff Kilburg, chief investment officer and portfolio manager at Sanctuary Wealth.
“I also believe that investor confidence in US stock markets, which are near all time highs, is making a difference. The tide is lifting all boats,” added Kilburg.
In January, GameStop became the center of attention, sending shock waves across Wall Street. A group of retailers coordinated operations on Reddit’s WallStreetBets forum and managed to create a massive short squeeze that caused great pain to hedge fund short sellers on behalf of the company.
Back then, day traders were targeting names with increased interest in short, including AMC Entertainment, BlackBerry and Bed Bath & Beyond. When hated stocks like this suddenly rose in price, short sellers had to buy back stocks they had borrowed to close their short positions and reduce losses. The forced buying shorts then fueled the rally further.
GameStop, a brick and mortar video game retailer, is in the midst of an e-commerce change after this year’s monstrous rally. Starting the year below $ 20, the stock rose to $ 483 per share in late January amid the historic short squeeze. Shares are still up 1,130% in 2021, last trading at $ 233.
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