“Meme action fever.” A repeat of 2021?

In such a situation, investors' decisions do not result from a fundamental analysis of a given business, they are the result of ad hoc measures, which are emotions, and the first two days of the second half of May will probably go down in history as the second spurt of meme shares, which was triggered by the return to activity of the user “RoaringKitty” on the X platform

Meme fever. @RoaringKitty is back

– The meme stock fever that fueled Wall Street's emotions in 2021 has once again hit the stock market and we are dealing with a mirror situation related to GameStop – says Tymoteusz Turski, XTB stock market analyst, in an interview with MarketNews24.

The alleged return of the legendary user @RoaringKitty, the icon behind the speculative attacks of the WallStreetBets group, after three years of inactivity, caused the shares of GameStop and AMC to gain 180%, respectively, in two days. and 135 percent A mysterious tweet by Keith Gill (real name @RoaringKitty) on the

Aggressive share buybacks

WallStreetBets or WSB is a subgroup on Reddit where participants discuss how they trade stocks and options on the stock markets. However, what distinguishes this group is its colorful and vulgar jargon, which, combined with aggressive trading strategies, perfectly suits the tastes of the young generation of the 21st century. In 2021, it was here that the trend of aggressive purchase of shares selected by users of listed companies was born, which, often struggling with financial difficulties, recorded astronomical increases on the stock exchange. A little later, the whole trend also moved to the cryptocurrency market, which was an ideal place for adrenaline-hungry new investors to risk their life savings.

What effect can a sudden increase in interest in the shares of a company that is on the verge of bankruptcy and has long been perceived as a lost asset have? Of course, the result was significant price increases. The catch, however, is that, given the powerful positioning of funds in short positions (making money on declines), higher increases force many of them to close these transactions, which further fuels the price increases (covering the short position involves repurchasing previously sold shares).

Short market squeeze

A snowball effect has been created on the market, which is called a short squeeze. In 2021, as now, it is responsible for astronomical increases in the prices of selected companies, and its scale depends on what percentage of a given company's shares are sold short and how much interest is generated by small investors in a given stock.

– We are dealing with a short squeeze when investment funds take a short position on given assets and at the same time, due to the dynamic increase in the price of these assets, they are forced to close these positions – explains the XTB expert. – They then have to buy back the shares they had previously sold, which additionally increases demand, and if we have a large enough group of investors who have previously bought these shares and do not want to sell them, the additional demand further enhances the increase in share prices. In such a situation, subsequent funds are forced out of their short position and demand increases again.

Funds lost nearly USD 20 billion in 2021 on WSB shares. this time, after two days, the losses only reach USD 3 billion.

On this occasion, it is worth recalling that in 2021, we observed a short squeeze on CD Projekt shares. Then Elon Musk himself defended the CDR share price.

The market situation may change

Emotions very often determine market sentiment in the short term, and then give way to very pragmatic aspects. The period of increased interest in meme stocks may last as long as the involvement of retail investors themselves does not naturally begin to decline or the fundamental situation does not change. Until then, we can expect that all sides of the market “game”, emotionally driven retailers and funds focused on cold calculation, will provide us with great emotions on Wall Street, which is made up of numerous ups and downs.

– This is a situation of increased volatility on the stock market, which may change very quickly – summarizes T.Turski from XTB. – At the same time, these are situations where trading in shares is often suspended.

After two days of massive growth in small meme stocks, it's time for a correction or burst of this little bubble. Shares of companies such as AMC or GameStop lost up to 1/3 of their value, although of course in the previous days the increases were often measured in three digits.