This week has ushered in a 2021 redux, with shares in GameStop and AMC rocketing higher on the back of retail investor activity just like they did in the “meme stock frenzy” that gripped markets three years ago.
And there are more stocks on the move, too.
Shares in many companies that at one point attracted significant interest from retail investors in online communities—and especially stocks that are heavily bet against or “shorted”—have followed the most popular names higher on Monday and Tuesday. The recent surge in interest for these legacy meme stocks came after a social media user known as Roaring Kitty — an influential figure in the 2021 rally — posted on for the first time in years. It sets the stage for more meme-driven market volatility.
Shares in phone maker-turned security software company BlackBerry advanced 6.9% on Monday and were 27% higher in Tuesday’s premarket. KOSS, a maker of headphones, saw its stock pop 37% on Monday and jump another 19% on Tuesday. Both of those companies in the past had a turn in the spotlight among the type of retail investor crowd that catapulted GameStop into popular imagination.
There was also spiky action in heavily-shorted names. In order to bet against a stock, investors borrow shares and then sell them, wagering on repurchasing them later at a lower price. If the bet goes wrong and prices rise, investors come under pressure and may opt to repurchase and return the shares at a higher price, “covering” their position and taking a loss. If shorting is a crowded trade, then investors can end up clamoring to buy the same shares, “squeezing” prices higher. These dynamics were key to the 2021 rally, as retail traders pumped shares higher, inflicting pain on short sellers.
Solar group SunPower, which is among the most shorted stocks on Wall Street, with some 95% of its free float sold short, saw its stock rip 19.6% higher on Monday and rise a further 11% in Tuesday’s premarket trading. Shares in MicroCloud Hologram, which has 75% short interest, advanced 17.7% on Monday and another 40% on Tuesday.
Given the relatively high short interest in some of these names, squeezy dynamics and stomach-churning moves could continue. But investors should be wary: retail investor attention can be very fickle, meaning upward pressure on the shares can disappear just as fast as it arrived.
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