The rollercoaster ride of meme stocks took a sharp downward turn late this week as shares of GameStop and AMC Entertainment nosedived following a brief resurgence sparked by the return of influential trader Keith Gill known as “Roaring Kitty.” GameStop stock plummeted 30% to close at $27.67 after reaching as high as $64.83 earlier in the week while AMC shares dropped 15.3%.
According to Rick Meckler partner at Cherry Lane Investments, short sellers who were caught off guard by the massive buying pressure and short squeeze in 2021 have likely adjusted their strategies to minimize exposure and reduce the potential for extended upward pressure on the stocks.
Gill who led the 2021 day trader campaign against institutional investors betting against GameStop reignited the meme stock frenzy by posting a photo on X/Twitter on Sunday night his first post since June 2021. The image of a man leaning forward in his gaming chair a popular meme suggesting renewed focus sent GameStop and AMC shares soaring.
However, the rally quickly lost steam with both stocks experiencing significant declines as the week progressed. Unlike the 2021 meme stock craze Vanda Research noted that institutional investors were also involved in the recent hype.
Short sellers suffered unrealized losses of $1.14 billion this week according to analytics firm Ortex Technologies while hedge fund Renaissance Technologies had bet on GameStop shares rising higher.
Despite the brief resurgence GameStop stock has fallen more than 70% from its 2021 peak and AMC shares have plummeted 99% from their all-time high. The rapid rise and fall of these meme stocks underscore the unpredictable nature of such market phenomena.
Victor Ricciardi a visiting finance professor at Ursinus College and co-author of “Advanced Introduction to Behavioral Finance,” described the meme stock rally as an outlier event concentrated on a small group of investors rather than a bubble affecting the overall market. “It’s not a real economic event for the average investor,” Ricciardi said.
