Mon, August 15, 2022
Retail traders are back at it again — using a signature playbook to push meme stocks and other assets higher.
“The retail is back,” Interactive Brokers chief strategist Steve Sosnick told Yahoo Finance live on Monday.
“The meme stocks I guess are the perfect tell for this. To a certain extent crypto coming back [Bitcoin] (BTC-USD) testing $25,000 is another tell.”
“A lot of people are using the 2020, 2021 playbook over again,” said Sosnick.
“It was a spectacular playbook for that period of time. But the rules of the game seem to be changing.”
Despite Fed concerns, uncertainty out of China, and questioning whether the markets are in a bear market rally, stocks like GameStop (GME), AMC (AMC) and Bed Bath and Beyond (BBBY) have been soaring recently. New names like Chinese tech firm AMTD Digital (HKD) have also surged. HKD and other stocks have acted more like swing trades.
Retail traders poured into names like GameStop and AMC in early 2021. They became the flagship meme stocks amid a period of high liquidity in the markets and looser monetary policy. But since then, the Federal Reserve has been hiking rates amid soaring inflation.
The markets went into bear market territory earlier this year, but have since come off their mid-June lows.
“For now the playbook is working,” said Sosnick. “But I have to wonder if using that same investment playbook that worked for you which includes ‘Don’t fight the Fed’ - which in that period of time the Fed was your friend — now the Fed is kind of a headwind."
Sosnick notes the meme stock rally nowadays has a "less organic nature to it."
"The initial meme stock craze you had people coming in who never invested before putting money into these stocks and investing. Now it seems to be the same cast of characters chasing the same list of names with a couple of new exceptions every so often," said Sosnick.
"That becomes more of a self contained loop," he added. “The meme stock trading works great if you’re early. It works terrible if you’re late."
By Medha Singh and Bansari Mayur Kamdar
(Reuters) -Shares of Bed Bath & Beyond Inc surged 60% to a near five-month high in volatile trading on Tuesday, as retail investors flocked to the stock after a filing revealed activist investor Ryan Cohen's latest bet on the home goods retailer.
The stock rose as much as 78.8% to $28.60 during the session and trading was halted multiple times for volatility.
Cohen's investment vehicle RC Ventures, which is the second largest investor in the company and has added three independent directors to its board, bought call options expiring in January 2023 on 1.67 million shares with a strike price ranging from $60 to $80.
An option gives the buyer the right to buy or sell a security at a given price on a given date. Buying a call option is essentially betting the underlying asset will rise in price.
"You see his name (Cohen) associated and it gets the buzz going. So right now social media buzz is flying around Bed Bath and Beyond and it is spilling over other stocks as well," said Dennis Dick, retail trader at Triple D Trading.
The home furnishing company's shares were the most traded on brokerage Fidelity's platform, indicating interest from retail investors.
About 300 million shares changed hands by 2:30 p.m. ET, far outpacing the stock's 30-day moving average volume of nearly 29 million.
Trading in Bed Bath & Beyond, which has 50.7% of its public free float in short position, has triggered a short squeeze signal, according to analytics firm Ortex.
The stock is up 440% so far this month in a rally that is evocative of eye-watering gains in shares of GameStop and AMC Entertainment early last year that hurt hedge funds that had bet against the stock.
Other highly shorted stocks, meal-kit delivery firm Blue Apron, sports TV streaming co FuboTV, GameStop and barbecue grill maker Weber Inc jumped between 8% and 53%.
Bed Bath & Beyond opened lower on Tuesday after B. Riley downgraded the stock to "sell", saying the shares were trading at "unrealistic valuations."
(Reporting by Medha Singh, Bansari Mayur Kamdar and Sruthi Shankar in Bengaluru; Editing by Maju Samuel and Shinjini Ganguli)
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