Why Meme Stocks Like AMC and GameStop Are Crashing Today

What happened

Monday isn’t a big day for the market at large, but it’s a downright terrible day for some of the market’s most popular stocks. Actions of Producers of sundials (NASDAQ: SNDL) and GameStop (NYSE: GME) are down 2.5% and 11.5%, respectively, as of 2:18 p.m. ET today. AMC Entertainment Holdings (NYSE: AMC) leads the charge lower, however, with a decline of 14.3%. Oddly enough, there aren’t any damning headlines to be referred to as the cause of the massive sales.

So what

It’s a tough day for these three and other memes titles, of course, including Bed bath and beyond (NASDAQ: BBBY) and Clover Health Investments (NASDAQ: CLOV), the former amounting to almost 6% while the latter is below about the same level.

But it’s not as if today’s stumbles were sudden or surprising setbacks. AMC Entertainment is now down nearly 50% from its early November high, hitting multi-month lows as a result this morning. Sundial shares are down almost 40% from their peak in early November. GameStop action is also at its lowest for several months today, after falling more than 50% in the past three weeks. Clover is also deep in new low territory, while Bed Bath & Beyond is now down 35% from its peak in last month’s recovery effort.

In the meantime, good news has emerged from (or about) these outfits. For example, AMC managed to beat its third quarter profit estimates. Sundial shares rose briefly early last month after the company said it would repurchase up to C $ 100 million ($ 78.14 million) of its own shares; for reference, its current market capitalization is just under $ 1.2 billion. GameStop shares started to come out of a funk and enter a new uptrend from October, when it apparently looked like activist investor Ryan Cohen would be able to get the video game retailer out of the box. trouble and get back to relevance.

However, none of these reports or the resulting optimism lasted.

This reason? This is not because of the spread of the omicron variant of COVID-19. On the contrary, so many of those once popular stocks of memes are now stumbling in large part because their tax realities are no longer obscured and overwhelmed by the prospect of short cuts. With the exception of Sundial, short-term interest in these stocks has decreased measurably since October, if not earlier.

Image source: Getty Images.

Now think more philosophically about what that little diminishing interest says. It is also a clue that traders believe that the bullish arguments required to initiate short squeezes are no longer effective.

Nor is it a mistaken doubt. Attendance at AMC’s theaters is stabilizing, for example, but only at about half of its pre-COVID-19 levels. Even though there are legitimate fears that Sundial will never be profitable, the company is also in acquisition mode, further reducing the chances of its acquisition itself. With no clear recovery plan in place to reverse years of declining earnings, the analyst community still says GameStop shares are only worth just under $ 85 each. That’s about 40% below the current share price.

Connect the dots. Even stock trading just doesn’t work anymore – especially those who have been motivated by organized plans to trigger short cuts.

Now what

None of this is really surprising to seasoned investors, of course. The market can only ignore the budget results for such a long time. And the unsuspecting short sellers who were briefly caught off guard earlier this year aren’t going to make the same mistake again anytime soon. Both were and are necessary components to force a rally in stocks of companies that are not exactly entrenched winners.

Don’t look for that drop of enthusiasm or lack of interest to change course anytime soon, either. It took weeks for the hype-driven memes stock movement to freeze. It might take several more weeks for it to dissolve now, even if it has already been doing so quietly for some time. Today’s sales are just the strongest evidence we’ve seen of this weakening.

That’s not to say that these stocks can’t or won’t climb again at some point in the future, to be clear. This is just to say that no newcomer can afford to take such speculative positions at this time if they are not fully prepared for larger losses.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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