The indexes ended the day with mild gains on almost exactly even breadth, but the story Wednesday was meme stocks.
Everyone was focused on the wild action in stocks like AMC Entertainment (AMC) , BlackBerry (BB) , Koss (KOSS) , Kodak (KODK) , and a few dozen others. Even those not trading the names were focused on the moves.
Most of these stocks have only one big thing going for them -- social media. Some of these names catch the attention of social media players, and they attract more players, and they even bring in some big money traders who are willing to chase these stocks far beyond any reasonable valuation. Sometimes they specifically target heavily shorted names but mainly, the dynamic at work is that momentum attracts more momentum.
While this can be very entertaining trading for many folks, the problem is that it tends to sap the broader market of energy. We saw this happen before back on Jan. 27 when GME traded up 135% while the Nasdaq 100 fund (QQQ) was hit for a loss of 2.8%. The spread wasn't as extreme Wednesday, but much of the market was lackluster, while the meme names ran wild.
This meme action does seem to persist, and I expect to see plenty of comments from traders looking for heavily shorted stocks that could possible attract more interest. The phenomenon will create another crop of bag holders, but right now, there are a lot of meme gamblers that are feeling quite smart.
Hopefully, the speculative action will spread, and we'll see some stocks move based on fundamentals and good technical setup and not just an overly emotional crowd of day traders, but for now, it is all about the memes, and if you aren't playing them then you are missing the excitement.
Have a good evening. I'll see you tomorrow.