Unreal: Meme Stocks Are Back!

Meme Stocks are Back – But Here’s What the Media is Missing

It’s 2021 all over again for better or for worse. Meme stocks are back in the headlines after a long time away, and there are implications that all traders and investors need to be aware of.

Here’s what happened on Monday morning. Reddit user and meme stock trader “Roaring Kitty,” whose real name is Keith Gill, came out of hiding and posted on X (formerly known as Twitter). Whether it makes sense or not, businesses with questionable fundamentals are suddenly top-of-mind on Wall Street.

The madness wasn’t limited to Monday’s price action. Meme stocks like GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC) continued to soar on Tuesday in a jaw-dropping two-day rally with no apparent end in sight.

This has nothing to do with the fundamentals of GameStop and AMC Entertainment. Both of those companies are struggling, as many young users prefer to stream video games and movies nowadays instead of buying physical copies of games and going out to movie theaters.

Thus, considerations like debt and revenue growth are irrelevant to short-squeeze traders. Instead, they’re busy keeping up with the latest chatter on Reddit and trying to guess what the “next” GameStop stock will be.

It’s a bizarre phenomenon, with the share prices of GameStop, AMC Entertainment, headphone manufacturer Koss (NASDAQ: KOSS), and solar company SunPower (NASDAQ: SPWR) skyrocketing on both Monday and Tuesday. These are completely disparate businesses in different sectors of the economy, so there’s evidently no rhyme or reason as to which ones will get the short-squeeze treatment.

Therefore, serious investors shouldn’t try to guess what the “next” GameStop or AMC stock will be. Even if you’re “in the know” when it comes to Reddit buzz and meme stocks, everything could change quickly with a sentiment shift or a posting from an influencer like “Roaring Kitty.”

You know there’s something strange happening in the markets when Federal Reserve Chairman Jerome Powell is speaking and no one is paying attention. Powell said out loud that restrictive interest rate policy may take longer than expected to lower inflation, but the financial media was too distracted by meme stocks to bother reporting on it.

Unfortunately, both the financial media and amateur stock traders tend to have short attention spans and little regard for the lessons of the past. The high-flying meme stocks of 2021 could only fly high because the situation was so different. Back then, inflation was comparatively low along with interest rates.

Now, as Powell just warned us, interest rates won’t likely be low anytime soon. Chances are interest rate policy will remain higher for longer, and that’s problematic for highly risky assets like GameStop and AMC Entertainment stock.

Then again, attention spans are short nowadays. Traders are ignoring the most established cryptocurrency, Bitcoin, and instead bidding up meme coins like PepeCoin (yes, that’s an actual cryptocurrency), which just shot up to an all-time high price.

This certainly isn’t to suggest that precious metals are out of favor at the moment. Gold at $2,350 per ounce and silver at nearly $29 per ounce indicate good progress in 2024 so far.

Here’s what the financial press totally missed, though. While the mega-cap Dow Jones index failed to rise on Tuesday, the small-cap Russell 2000 index outperformed.

Small-cap stocks have lagged behind the so-called “Magnificent Seven” mega-cap technology stocks for a while now. Yet, the tide may be turning since market rotation has historically shifted back and forth between large caps and small caps.

Now, it could be the small caps’ turn to lead the pack. This presents a huge opportunity in the resource sector because gold silver miners have lagged behind while the prices of physical gold and silver have rallied in 2024’s first half.

Value hunters should put some largely overlooked gold and silver miners on their watch lists. The meme stocks already had their day (or two) to shine, but some small but high-potential businesses actually deserve to have 200% and 300% bigger market caps. The challenge is to identify the opportunities – which is what Crush The Street specializes in doing all day every day.