Benzinga - by Shanthi Rexaline, Benzinga Editor.
Meme stocks GameStop Corp. (NYSE:GME) and AMC Entertainment Holdings Ltd. (NYSE:AMC), which saw whopping gains over the first two sessions of the week, experienced a sharp pullback on Wednesday. Premarket trading indicates that this weakness is likely to persist. And according to Vanda Research, this fresh meme mania may not reach the same feverish pitch as seen at its peak in 2021.
Muted Meme Rally? Inflows into GameStop and AMC have been only a fraction of what was observed in early 2021, with current trading volume less than one-fourth of the levels seen during the first meme stock rally, reported Yahoo Finance, citing Vanda Research.
In the five sessions leading up to Monday’s close, retail trades in GameStop averaged 7%, while for AMC, the number was only slightly higher, the report noted. This average was significantly higher in 2021, indicating robust participation by retail investors. This trend is also evident in the options market, the report added.
“Do we think more retail traders can jump in on the trend in the coming days? Yes. Do we think this is a repeat of 2021? No, and the chances we reach that stage are low,” said Vanda.
A notable example is hedge fund Melvin Capital, which suffered heavy losses due to its short positions on meme stocks during the 2021 rally. The firm lost $6.8 billion in January 2021, more than half of its assets under management. Subsequent market downturns in 2022 further exacerbated its losses, leading to the fund’s winding down and returning money to investors.
Hedge Funds Better Prepared? Marco Iachini, senior vice president at Vanda, reportedly stated, “If anything, we believe the chances that they [Quant/hedge funds] participate along with retail in the squeeze but also lean against and then exit these trades ahead of retail traders are high.”
Vanda noted that the recent meme rally lacks a single, coherent narrative like that seen in 2021.
The recent meme rally is not backed by “one single, coherent narrative, like the meme story” that played out in 2021, Vanda said. “In a critical break from prior trading epochs, much of the recent meme stock volatility is being fueled by material news and fundamentals, like earnings, as opposed to Reddit posts,” it added.
‘Seen This Movie Already:’ Gregory Davis, CIO of Vanguard, the investment advisor based in Malvern, Pennsylvania, cautioned retail traders about getting carried away. In a LinkedIn post on Tuesday, Davis stated, “I've seen this movie already.” He emphasized the risks associated with speculative investments, cautioning that while some may profit, many others could suffer losses.
Price Action: GameStop and AMC surged 179% and 135%, respectively, this week through Tuesday following 2021 meme-mania influencer “Roaring Kitty” posting social media statuses after a three-year hiatus. GameStop reached a recent intra-day peak of $64.83 on Tuesday but is still way off from the $120.75 peak reached on Jan. 28, 2021.
However, these stocks have since experienced a pullback. On Wednesday, while the broader market climbed to a record high, GameStop closed down 18.87% at $39.55, and AMC lost 20% before settling at $5.48, according to Benzinga Pro data.
In Thursday’s premarket trading, GameStop and AMC fell 14.06% and 12.77%, respectively.
Read Next: Jim Cramer Can’t See GameStop Trading At $64 Or Even $44, Warns Against Meme Stock Mania: ‘Responsible Move Is To Sell, Sell, Sell’
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