Tag: Meme Stocks

GameStop Frenzy Erupts as “Roaring Kitty” Resurfaces After 3 Years

Posted on by slightbourne@noblecapitalmarkets.com

In an explosive return, the man who inspired the historic GameStop “meme stock” mania in 2021 has re-emerged from a three-year hiatus – sending shockwaves through Wall Street once again.

Keith Gill, known online as the legendary “Roaring Kitty” had been silent across social media since rallying an “ape army” of retail traders to bet big against hedge funds that were shorting GameStop stock. That is, until May 13th, 2024, when he ominously posted a simple image of an intensely focused video gamer to his X account.

The GameStop “Roaring Kitty” Rallying Cry Heard Again
It was all the wake-up call the meme stock movement needed. Within hours of Gill’s first post in over 1,000 days, shares of GameStop Corp (GME) were halted for volatility multiple times as they skyrocketed as much as 110%. When the mayhem settled, the video game retailer’s stock closed a staggering 70% higher on the day.

The Roaring Kitty-inspired surge was a flashback to January 2021, when GameStop became the poster child for a new era of disruption on Wall Street. Gill’s passionate YouTube streams advocating for the struggling company had mobilized a horde of online day traders from the Reddit forum r/WallStreetBets.

By piling into GameStop shares and options contracts, these self-dubbed “apes” triggered a cataclysmic short squeeze – forcing institutional investors with massive bearish bets against GME to cover their positions at rapidly escalating prices. Within two weeks, the stock had captured the world’s attention by inexplicably spiking over 2,700% from $17.25 to an intraday peak of $483.

Hedge Fund Decimation and Hollywood Deals
Billion-dollar hedge funds like Melvin Capital were decimated by the GameStop short squeeze, requiring emergency cash injections to stay afloat. The historic market event shined a light on the fragility of Wall Street’s short-selling practices and the power of unified retail investors.

Roaring Kitty himself faced intense scrutiny over his role. Gill testified before Congress about his GameStop windfall and was slapped with a class-action lawsuit alleging he misrepresented his expertise. The saga even inspired the 2023 feature film “Dumb Money,” with actor Paul Dano portraying Gill’s journey to meme stock fame.

Can Lightning Strike Twice for Meme Stocks?
While the hype around GameStop had cooled off in recent years, Roaring Kitty’s comeback appearance instantly rejuvenated the movement he started. But can retail traders engineer another shocking short squeeze against institutional behemoths?

GameStop’s core business remains on shaky ground against digital downloads and e-commerce juggernauts. In its latest earnings report, the company posted lower revenue and cut jobs to reduce costs, showing its stock may still be disconnected from fundamentals.

However, with Roaring Kitty leading the rallying cry once more, the army of “ape” traders is ready to shake up the establishment all over again. And with nearly 25% of GameStop’s shares still sold short, the conditions may be ripe for another seismic confrontation in the meme stock revolution.

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New Highs Across Markets Signal Bull Run For Investors

Posted on by slightbourne@noblecapitalmarkets.com

The stock market is heating up and signaling the return of the bulls, as evidenced by fresh all-time highs in the S&P 500 and a rally across risk assets like Bitcoin and gold. Fueled by booming innovation in artificial intelligence, speculative capital is flowing back into equities in a big way. For investors, it may be time to go hunting for the next big investments.

The S&P 500 broke out to new records this week, finally surpassing the previous highs set back in January 2022 before last year’s punishing bear market. The large-cap index closed at 5233 on Thursday, up over 28% year-to-date. This demonstrates that the decade-plus bull run that began after the 2008 financial crisis may have refreshed legs under it.

The strength comes as AI mania has gripped Wall Street and Main Street. The smash success of OpenAI’s ChatGPT triggered a cascade of investors plowing capital into AI startups and tech giants racing to deploy advanced language models and machine learning systems. Cathie Wood’s Ark Invest funds, which load up on disruptive innovation plays, have surged over 30% in 2023.

Even the traditionally cautious money managers are piling in. Just this week, e-commerce juggernaut Amazon announced a staggering $4 billion investment into AI research firm Anthropic. It shows the FANG giants remain at the vanguard of cutting-edge tech adoption and are more than willing to spend big to stay ahead of the curve.

The AI buzz has spurred a speculative frenzy not seen since the meme stock and SPAC manias of 2021. The heavy inflows, plus robust economic data, have pushed U.S. stock indexes to their most overbought levels since the rally out of the pandemic lows. Technical indicators suggest more volatility and pullbacks could be in store, but the trend remains firmly bullish for now.

The buying spree has spilled over into other risk assets like cryptocurrencies and gold. Bitcoin soared above $70,000 recently to its highest levels ever. The original crypto has rallied over 70% in 2023 as institutions warm back up to the space and the AI buzz rekindles visions of decentralized Web3 applications and business models.

Not to be outdone, gold has surpassed $2,200 per ounce and is trading at levels far greater than what was seen in 2020 during the pandemic turmoil. Bullion is benefiting from growing concerns over persistent inflation and fears the Federal Reserve could push the economy into recession as it keeps raising interest rates aggressively. The yellow metal is increasingly seen as a haven in times of economic and banking system stress.

Combined, the advancing prices and frothy trading action point to the return of the animal spirits last seen at the height of the Robinhood/Reddit meme stock craze from two years ago. Caution is certainly warranted, as downside risk remains with growing chances of an economic hard landing from the Fed’s inflation fight.

But the market often climbs a wall of worry, and the blowout action indicates speculators are back in full force. For investors able to navigate the volatility, this may be an ideal time to put capital to work and research the next big opportunities to ride the bull’s coattails.

As ARK’s Cathie Wood stated, “Given the breakthroughs in AI broadly, we believe we are living in the most profound period of commercial invention ever.” Profound invention tends to create extreme investment returns for those with the foresight to invest early in transformative technologies.

For investors searching for the potential 100-baggers of tomorrow across sectors like AI, quantum computing, biotech, fintech, and cybersecurity, buying dips and dollar-cost averaging into high-conviction positions could pay massive dividends down the road. The market mania may only be just beginning.

AMC and APE Shareholder’s Bumpy Ride to Continue

Posted on by phoffman@channelchek.com

Adam Aron Explains the Reasons Share Conversion and Issuance is Good for APE Shares

Meme stocks are getting attention again as the movie Dumb Money is set for release in late September, GameStop (GME) is implementing a strategy to use its stores as fulfillment centers, and AMC Theatres (AMC) has a court ruling on its APE shares that has added significant volatility, including a 67% upward spike after hours on Friday July 21. The AMC story is involved and likely to cause wide swings until resolved as investors wrestle with guessing what a new ruling means for the company’s financial strength, and whether the judge’s decision could be overturned on appeal or through shareholder approval.

Source: Koyfin

The main source of the ongoing dramatic moves in AMC stems from its proposed APE shares conversion. These preferred shares were provided as a dividend with a 1:1 conversion feature. If/when converted to regular AMC shares, they will dilute the regular shares. When issued, APE shares were considered a brilliant financing mechanism and method to determine if any fraudulent units were used to create a naked short.

In late July a judge blocked the proposed settlement on AMC Entertainment Holdings stock conversion plan that would also allow the company to issue more shares. The stock had been depressed in anticipation of the additional shares that would have been created. With the thought that additional shares won’t be entering the market, common shares (AMC) soared, and preferred shares (plummeted).

The Delaware chief judge Morgan Zurn said in her ruling that she cannot approve the deal, which would provide AMC common stockholders with shares worth an estimated $129 million.  The company was sued in February for allegedly rigging a shareholder vote that would allow the entertainment company to convert preferred stock to common stock and issue hundreds of millions of new shares. The investors who sued alleged AMC had enacted the plan to circumvent the will of common stock holders who opposed the company diluting their holdings.

Without the proposed settlement, common stockholders and preferred shareholders would end up owning 34.28% and 65.72% of AMC, respectively. Under the ruling, common stockholders and preferred shareholders would own 37.15% and 62.85%, respectively.

Judge Zurn wrote that while the deal would compensate common stockholders for the dilution, they had no right to settle potential claims by holders of preferred stock in this way. The settlement received more than 2,800 objections from shareholders, a level of interest Zurn called “unprecedented.” She said “AMC’s stockholder base is extraordinary,” adding many “care passionately about their stock ownership and the company.”

But what appears short term to be good for common shares, may actually weaken the financial position of the company over time according to AMC’s chairman. In an open letter, AMC chairman Adam Aron wrote, “What may not be clear to AMC’s shareholders is that if the company is unable to convert APE shares, AMC will be forced to issue significantly more APE shares to cover its upcoming cash requirements.”

Aron explained AMC is burning cash at an unsustainable rate and warned that an inability to raise capital could force the company into bankruptcy. Selling more shares would enable it to pay down some of its $5.1 billion in debt. These financial matters are further complicated by the writers and actors strike which according to Aron could delay the release of movies currently scheduled for 2024 and 2025.

Paul Hoffman

Managing Editor, Channelchek

Sources:

https://twitter.com/CEOAdam/status/1683215965608189954/photo/1

https://www.reuters.com/legal/delaware-judge-will-not-immediately-approve-amc-shareholder-settlement-2023-07-21/

https://courts.delaware.gov/Opinions/Download.aspx?id=346020

https://news.bloomberglaw.com/securities-law/amc-revises-stock-conversion-settlement-plan-rejected-by-judge

Bed Bath and Beyond, Why Companies Delist, and Investor Impact  

Posted on by phoffman@channelchek.com

Do Investors Take a Bath When Stocks Delist?

One popular meme stock, Bed Bath & Beyond (BBBY) is being delisted from the Nasdaq exchange, according to a company announcement. There are a number of reasons a public company can delist from an exchange. In BBBY’s case it is related to their recent bankruptcy filing, according to management. Below are examples of the many reasons a company would delist, what happened in BBBY’s case, and what delisting means for investors.

Many Reasons to Delist

Delisting from the stock exchange refers to the removal of a company’s shares from public trading on a particular exchange. It occurs by management choice or at the exchange’s request. The process can happen for various reasons, such as regulatory violations, bankruptcy, or a company’s decision to go private. Delisting can have significant consequences for the corporation and its investors, including decreased liquidity and visibility in the market.

A common reason for delisting is regulatory violations. For example, if a company fails to comply with the reporting requirements of the Securities and Exchange Commission (SEC), it may face delisting from the stock exchange. This was the case with Chinese tech giant Alibaba, which was delisted from the Hong Kong Stock Exchange in 2020 because of regulatory violations.

Sometimes, companies have a reason to take themselves private and delist as part of that process. Going private means that a corporation’s shares are no longer traded on public stock exchanges. In 2013, computer maker Dell was taken private in a deal worth $24.9 billion. The company’s delisted its shares from the NASDAQ exchange. Twitter was recently purchased and taken private.

As is the case with Bed Bath and Beyond, bankruptcy often causes shares not to meet the exchange’s criteria, forcing a delisting. Another retailing example is Toys R Us in 2018. It filed for bankruptcy and was subsequently delisted from the New York Stock Exchange (NYSE).

Delisting can have significant implications for a company and its shareholders. One of the main consequences is a decrease in liquidity. When a company is delisted, its shares are no longer traded on public stock exchanges, which means that investors may have a harder time finding buyers or sellers for their shares.

Additionally, delisting can impact a company’s visibility in the market. Without a public listing, a company may find it more difficult to attract investors and raise capital. This can be particularly challenging for small and mid-sized companies that rely on the stock market to raise funds.

Bed Bath and Beyond’s Delisting

Trading in BBBY common stock will cease at the opening of the trading day on May 3 – according to a filing with the Securities and Exchange Commission (SEC).

In its bankruptcy announcement, the company said trading of shares would halt on the Nasdaq exchange. Nasdaq and the NYSE have standards companies need to meet for their stocks to be listed and stay listed. This includes minimum levels of liquidity, market value, or price level.

Back in January, Nasdaq warned the company its shares would be delisted after it failed to report quarterly results in a timely manner. The company eventually filed the report and returned to compliance. This time Bed Bath and Beyond said it doesn’t intend to appeal.

Shareholders will still own the stock and fractional shares of the company after May 3. However, without the help of a major exchange, trading between stockholders and speculators is usually much more difficult. Some bankrupt companies’ stocks continues to trade in over-the-counter markets (OTC). They typically have the letter “Q” at the end of their stock symbol. It isn’t yet clear if BBBY will trade as BBBYQ.

After a company files for Chapter 11, unsecured creditors—including suppliers and leaseholders—line up in an attempt to get repaid. How much creditors get paid back depends on how much money Bed Bath and Beyond can raise from the sale of either parts of its business or the chain itself.

Take Away

Delisting from major stock exchanges can happen for various reasons and can have significant consequences for investors. While regulatory violations and bankruptcy can lead to forced delisting, companies may choose to delist voluntarily to go private or for other strategic reasons. Regardless of the reason, delisting can impact a company’s liquidity and visibility in the market, making it important for investors to carefully consider the implications before investing in delisted companies or those facing delisting.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.sec.gov/edgar/browse/?CIK=0000886158

https://www.investopedia.com/ask/answers/10/stock-holder-lose-equity-chapter-11.asp

https://bedbathandbeyond.gcs-web.com/news-releases/news-release-details/bed-bath-beyond-inc-receives-nasdaq-delisting-notice

https://bedbathandbeyond.gcs-web.com/news-releases/news-release-details/bed-bath-beyond-inc-files-voluntary-chapter-11-petitions

Retail Investors are Again Impacting Markets and Leaving a Mark

Posted on by phoffman@channelchek.com
Image Credit: Focal Foto (Flickr)

The Percentage Volume of Retail Transactions Has Surpassed 2020’s Level

Retail investors were a strong market force in 2021, and after a hiatus through much of 2022, they may be setting the tone in 2023. As a whole, the investors that fall into this category are watching signs that the US Federal Reserve and other central banks may be near the end of their rate hikes. This, coupled with last year’s sell-off, was taken as a sign to selectively jump back into positions. The positions they have been putting on have been moving the needle in the “risk-on” category; this has sent many of last year’s losers up double digits.

Data from JP Morgan demonstrate retail transactions have recently surpassed the market volume peak reached in the Fall of 2020. The more volume as a percentage of trades, the more influence over price movements any investment group has.

JPMorgan Data Shows Retail’s Market Percentage Has Quickly Grown

Retail Investors as % of Investors (JPM)

What Prices Have They Impacted?

During the last week in January, retail market orders as a percent of market value reached 23%, according to JPMorgan. Comparatively, it got to 22% a few times when GameStop (GME) was confounding institutional money while surging in valuation. As with the increase in retail volume during 2020, the renewed interest in committing to trades can have an outsized impact on sector movements and those of favorite stocks.

During the pandemic lockdown period, many self-directed investors chose to follow groups such as r/WallStreetBets on Reddit and forums on other chatrooms and platforms. One strategy that worked was directed at hedge fund short positions. It involved massive buying of stocks that were heavily shorted. The goal was to force the shorts to cover, which would produce buying and a higher stock price. This was effective enough to have caused significant problems with both institutional investors and the brokerage community settling the trades.

As January came to a close Many of the same risk trades, have gotten attention. AMC Theatres (AMC) is up 70% YTD. Cathie Wood’s ARKK fund, which invests in speculative disruptive companies, has risen nearly 46%. Also in the fund category is an ETF that invests in so-called meme stocks (MEME), this is up 41%.

Bitcoin (BTC.X), which had been presumed on its deathbed toward the end of last year, is up over 42% as it continues to track technology.  

Will They Again Score?

“Mark my words, it’s going to end in tears,” was a popular line amongst market pundits back in 2020-2021. The Great Unwashed, the Meme Stock Investors, the market participants Jim Kramer called Robin Hoodies don’t have a long track record. But the track record they do have is worth noting.

According to JP Morgan, as of the first week in February, Tesla (TSLA) was the most sold stock by retail investors. Others that have been sold include those categorized as green and infrastructure stocks tied to EVs and 5G broadband.

The most purchased were Amazon (AMZN) and APPLE (AAPL). The hashtag #MOASS, or Mother of All Short Squeezes, has been trending most days on Twitter. The stock tied to the posts is AMC (AMC, APE), as there has been ongoing news surrounding this classic meme stock. One meme stock that has not attracted that much attention is Bed Bath and Beyond (BBBY). The company, which is trading at $3.20 after having been at $22.80 less than a year ago, is on life support, and closing dozens of stores amongst talk of bankruptcy. For those that were able to withstand the retail short-squeeze in BBBY, they may be able to cash in.

Take Away

If the “risk-on” trend among retail investors continues, discretionary institutional money has learned to pay attention. Self-directed investors should also pay attention to new activity, and any rotation from  one cooling sector to one that is heating up.

In addition to following the news on Channelchek, investors can watch the Investor Movement Index (IMX) reported on the last weekend of each month by TDAmeritrade. For additional insight, it is always fun to check in on what the message boards are buzzing about and sorting through the serious and the nonsensical on Reddit and Twitter.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://imx.tdameritrade.com/imx/p/imx-pub/

https://realmoney.thestreet.com/jim-cramer/jim-cramer–15483915

https://www.yahoo.com/now/bed-bath-beyond-announces-87-080504711.html

https://www.marketwatch.com/story/theyre-baaaaack-retail-participation-in-the-stock-market-just-surpassed-the-gamestop-days-11675423836?mod=home-page

https://www.bespokepremium.com/category/think-big-blog/

Sky High Meme Stocks Score First in 2023

Posted on by phoffman@channelchek.com
Image Background: George Larcher (Flickr)

Meme Stocks are Putting Up a Strong Offense – Is this a Positive Sign for the Broader Market?

During the first three weeks of 2023, meme stocks and crypto tokens, often viewed in the same category, have scored early. Have meme stock investors now come off the sidelines after the poor performance last year? In 2022 they completely failed to repeat their historic 2021 wins. So the current rally is a great sign.

Successful meme trading occurs when there is a mass movement by retail accounts. So far in 2023, like flipping a New Year’s switch, retail is again causing a commotion. And by looking at the trending hashtags and cashtags on Reddit and Twitter, fans are also making an increased volume of noise.

Source: Koyfin

Looking at the 2023 performance chart above, the S&P 500 ($SPY) opened the year more positively than the prior year ended. While one obviously can not extrapolate out the current 1.59% return for the year, annualizing it helps bring the short period being measured into perspective. The overall market is running at a 30.50% pace this year. Wow.

The performance of GameStop ($GME), which was one of the original and among the most recognized meme stocks, is outperforming the overall market by double. While it is well off its high reached earlier this week, the above 3% return is running well ahead of the overall stock market.

The cryptocurrency in the group, the often maligned Dogecoin (DOGE.X), which is legendary as it started as a parody token, has been tracking Bitcoins (BTC.X) rise closely. DOGE is up over 18% on the year, averaging an increase near 1% per day.

AMC Entertainment ($AMC), which is off its high of almost 50% a few days ago, now has returned over 32% to those holding the stock. To put this in perspective, it has an annualized return in 2023, so far, of 628%. This likely has gotten ahead of itself, time will tell, but it is the clear MVP among the meme stocks to date.

Source: Koyfin

Last year the overall market, despite being down near 20%,, trounced the meme stocks that have thus far put in a stellar showing in 2023.

Is Meme Rally a Reason for Optimism?

Retail dollars coming in off the sidelines and mounting enough of a drive to force values up so quickly indicates a mood change that may play out elsewhere in the financial markets. The average trade size of retail is so small that it indicates a large wave of willingness, if not outright optimism, that putting money in play will lead to gains. Similar forces are causing money to move into mutual funds and ETFs, which serves to put upward pressure on the overall market.

Wall Street’s so-called “fear gauge,” the Volatility Index ($VIX) dropped on average 1% a day since the start of the year. This is a spectacular trend. It now stands near its long-term average of 21; a reading above 30 is considered bearish. The $VIX was last near these levels in April of last year. The overall market stood 15% higher back then compared to today.  

The Volatility Index has applications across digital assets as well. On a scale of 1-100, where 100 is overly greedy, The Crypto Fear and Greed Index stands near neutral at 52. This is also the most optimistic reading since April. It may be considered even more positive since the digital asset market is still digesting the “unprecedented” bankruptcy of crypto exchange FTX.

Meme mania has never been about macro; more about crowd behavior, commitment, and momentum. But there are fundamentals that are viewed by stock investors of all varieties that likely have fed into the burst of interest.  First, economic data suggests that inflation is trending lower. This deceleration lessens the need for the Federal Reserve to put the brakes on the economy. The enthusiasm is just more pronounced among this style of retail traders that are loud and proud. They serve as cheerleaders to captivate the imagination of more traditional investors.

Take Away

The overall financial markets opened with a sigh of relief in 2023. Meme stocks and crypto opened the year with extreme optimism. The optimism isn’t without cause; a number of factors point to a much better environment than the dismal returns of last year.

Will this contagion, led by many small accounts, inspire further the larger individual and institutional investors to commit investments in the broader markets, there are many signs that suggest the year is starting that way, fear of missing out will build with each day that the markets move in a positive direction.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.barrons.com/articles/gamestop-amc-dogecoin-shiba-inu-stock-price-meme-51674062277?mod=hp_LEAD_1

https://www.barrons.com/market-data/indexes/vix