Many of the "meme" stocks such as AMC Entertainment (AMC) , BlackBerry (BB) , Koss Corp. (KOSS) , Sundial Growers (SNDL) and Tilray (TLRY) are seeing very active trading in the early going Thursday while the senior indices are set for negative opens.
News that the Fed is going to start unwinding some of its bond buying is driving the softness in the indices and is putting some pressure on bonds, but under the surface, the speculative traders are ignoring the macro-economic issues and are intently focused on the Ponzi Scheme-like trading in individual stocks. Many of these names have big short positions and very questionable valuations, but the only issue that really matters to these traders right now is the price action.
There is a perception that this trading environment is primarily driven by small, amateur traders, but there are plenty of indications that there are very sophisticated, big-money traders involved in this action and driving it to a great degree. The small traders are just catching a ride on the coattails of aggressive hedge funds that are working hard to keep the action moving. Sooner or later, they will bail out, and things will collapse just like they did earlier this year, but the game is still on Thursday morning and showing few signs of slowing.
While meme trading is entertaining and paying off very nicely for aggressive traders, it is sucking up the oxygen in the market and putting pressure on other areas. The speculative money is focused primarily on these "junk" names that make crazy moves while those with better fundamentals and charts are ignored.
Earlier this year, similar meme trading helped to set the stage for some very ugly corrective action in speculative areas of the market and in growth stocks. Conditions are never the same, but this meme trading is going to burn out again fairly fast, and we are likely to see some sort of rotational action pick up when it does.
This is a tricky market right now. Some of the meme traders will be badly burned for a second time this year, and with the Fed now starting to unwind its bond buying, there are some headwinds.
I'll be focused on the price action in individual stocks and looking for pockets of momentum, but the potential for reversals is building, and I'll tighten things up if we don't see broader buying develop.
(BlackBerry is a holding in TheStreet's Stocks Under $10 portfolio. Click here to learn more about this portfolio, trading and market commentary service.)