Friday May 17 2024 06:31
6 min
GameStop and AMC Entertainment shares slumped on Wednesday, cooling off after a two-day rally sparked by Keith Gill, also known as "Roaring Kitty," who played a pivotal role in the 2021 meme stock surge.
AMC, a leading cinema chain, dropped 16% following a dramatic 135% increase over the previous two sessions. Similarly, video game retailer GameStop saw its stock plummet nearly 20%, erasing about half of its recent gains.
Both meme stocks faced multiple trading halts during the day due to volatility, with GameStop shares seeing over $3.4 billion in trading volume.
At the time of writing at 10:00 GMT on Thursday, GameStop shares were down 15.55% in premarket trading, while AMC stock was down close to 12%.
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The rally was spurred on Tuesday when Gill, under his "Roaring Kitty" persona, posted a clip from "Braveheart" on the social media platform X, featuring the word "GameStop" as Mel Gibson's character William Wallace shouted "freedom."
He also shared a video with Aerosmith’s "Back in the saddle again" playing in the background.
This marked Gill's first direct reference to a company since returning to X after a three-year hiatus, triggering a surge in the heavily shorted meme stocks and evoking memories of the 2021 retail trading craze. During that period, Gill's YouTube streams and Reddit posts mobilized significant retail investment into GameStop, causing substantial losses for hedge funds betting against the stock.
Gill has "became a hero of the common man [...] he's having fun putting up these memes and we're interpreting them [...] there's no science here", Andrew Left at Citron Research, a former GameStop short seller, told Reuters on Wednesday.
Markets.com Chief Market Analyst Neil Wilson echoed similar sentiments when the meme stock rally came to life on Monday, saying:
“Short interest in GME stood at 24% before the fireworks, so we can assume a fair chunk of the move is short-covering action chasing the initial move up, plus some hedgies will have had calls on their shorts.
Trend following and momentum strategies may have helped. And it looks like retail investors are becoming more bullish again and willing to take on more risk. There is no fundamental reason for the move as such — GameStop’s last earnings report was abysmal”.
He expanded on the GameStop-AMC dynamics as the rally extended to Tuesday:
“The thinking is that retail will go after some of them [meme stocks] in a Reddit-style attack on shorts; hedge funds that are short will have reacted swiftly to Monday’s moves in New York to cover some of their positions as a precaution.
Other stocks with a lot of short interest like SunPower (+60%) and MicroCloud Hologram (+61%) rallied but it wasn’t the case that all of the companies with the highest proportion of outstanding shares currently sold short rose.
There are lots of meme stocks, but a handful dominate and only a relatively small number catch the attention of investors at any given time”.
Meanwhile, AMC announced it would issue 23.3 million shares to convert notes due in 2026 into equity, totaling a principal amount of $164 million.
Vlad Tenev, CEO of the Robinhood trading platform, noted that the platform processed $5 billion in equities trading volume on Tuesday, marking one of its busiest days in the past year. “We're going to be upgrading some of our systems tonight to make sure we're prepared for even higher load,” Tenev tweeted on May 15.
According to Vanda Research data cited by Reuters, AMC and GameStop were among the top securities purchased by retail investors on Tuesday, with inflows of $51 million and $16 million, respectively.
As noted by Reuters’ Medha Singh and Pranav Kashyap, options trading on these stocks was particularly active, with a notable concentration in bullish call options, which benefit from rising stock prices.
The broader interest in meme stocks, however, has waned in the past two years amid rising interest rates, highlighted by the closure of the Roundhill MEME ETF, which targeted companies with high social media traction and significant short interest.
When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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