GME Is Back In Play!

Meme stocks are back.

Perhaps you remember the 2,700% spike on GameStop Corporation (NYSE: GME) in 2021 … 

Or the 3,500% spike on AMC Entertainment Holdings Inc. (NYSE: AMC) that same year … 

Or the 790% spike on Bed Bath and Beyond before it delisted … 

These HUGE meme stocks are back in play this week. Except for Bed Bath and Beyond, as a delisted company the shares aren’t public for trading anymore.

These were crap stocks. Actually, they’re still crap stocks.

The reason they spiked so high: Retail traders identified a massive short interest held by hedge funds and investment banks. Traders bought up shares and held onto them to prevent the stock price from falling any lower, eventually leading to a short squeeze. That’s where the term “diamond hands” came from.

The big Wall Street players who shorted these stocks were counting on shares to fall lower … After all, the stocks were crap.

• GameStop: a failing video game retailer in a world of online gaming services like Steam.
• AMC: An underperforming cinema during global lockdowns.
• Bed Bath and Beyond: Another failing retailer, similar to other brick-and-mortar stores that closed their doors, like Sears.

The short-selling thesis was correct. These crappy stocks should have continued lower.

Case in point: Bed Bath and Beyond delisted due to bankruptcy.

But retail traders spread their strategy online through social media like Reddit and Twitter. 

Essentially, if retail traders continued to buy, and refrained from selling, Wall Street would have to buy back shares to eventually exit their short positions.

The Result:

The bullish momentum eventually created massive short squeezes unlike anything the market had seen before. Financial reporters were baffled. And before they could pick their jaws up off the floor, prices rocketed even higher.

The stock spikes were entirely unsustainable. Remember, the companies were crap. But for a moment in time, retail traders won a major cultural battle against Wall Street.

One of the biggest meme-stock traders recognized by the online community was Keith Gill. His popular Twitter handle is known as “Roaring Kitty”:

I know … It’s a ridiculous social media handle. Why do you think we call them meme stocks? This specific trading community exists on reddit. Professionalism isn’t exactly their strong suit.

In 2020 and 2021, the trading community changed. Thanks to:

• Online brokers.
• High speed wifi.
• An abundance of stimulus money.
• And ample free time due to lockdowns.

Traders could make money from their mom’s basement clad in sweatpants and crocs. Forget about those Wall Street pinstripes.

Eventually the meme-stock frenzy settled down. People went back to work, and as I mentioned, the spikes were unsustainable.

Roaring Kitty stopped Tweeting in 2021 … 

But last Sunday, Keith logged back on. He posted a single Tweet, and as a direct result we saw a massive resurgence in meme-stock sentiment.

I reposted Keith’s Tweet below:

pic.twitter.com/YgjVqtgcNS

— Roaring Kitty (@TheRoaringKitty) May 13, 2024

The next day, Monday, May 13, GME spiked 110%. The chart below shows the move. Every candle represents one trading minute:

And GME wasn’t the only spiker. AMC shares also shot higher — by 100% during regular hours, and the price continued higher during after hours.

Take a look at the chart below:

The Next Move

This isn’t the last we’ve seen of the meme volatility.

Who knows, maybe Keith ran out of money from the spikes in 2021 … Whatever the reason, he’s back!

And he’s not done:

On Monday, during the meme resurgence, he posted 12 total Tweets. Each one adhering to the meme-theme. They were all home videos that he spliced together consisting of pop-culture references.

You can browse his profile here.

This next part is very important:

We’re not following Keith’s trade plans. We’re not following ANYONE’S trade plans.

These meme stocks CAN adhere to popular patterns because people are predictable.

When Keith posted on Twitter, the momentum surged back into meme stocks. It was a likely spike due to an obvious catalyst.

And we can trade that volatility because people behave predictably during times of high stress. Like when they’ve got a few thousand dollars in a sketchy meme stock that’s spiking +100%. Essentially, these trade patterns follow basic psychology.

Legendary small-account trader, Tim Sykes, discovered this common framework over two decades ago. I stumbled upon it 15 years ago. And the patterns still exist today.

This is the entire framework that we use to trade these volatile meme stocks.

I can’t tell you exactly how to trade this price action … Because by the time you read this blog post, the charts will look a little different. It all depends on the real time price action looks like in real time. We use live data to build the best positions on these volatile runners … 

>> Join the next daily live stream <<

We’re tracking this price action LIVE right now!

Don’t miss out on the 2024 meme-stock resurgence.

Have a great day everyone. I’ll see you back here tomorrow. 

Tim Bohen

Lead Trainer, StocksToTrade