A Meme Stock Revival? Don’t Buy GameStop’s 110% Pop

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By Adam O'Dell, Moneyandmarkets.com

At 8 p.m. Sunday, a long-dormant account posted a single picture to X…

And as soon as the opening bell rang yesterday morning, all hell broke loose.

Here’s the tweet if you haven’t seen it yet:

If the account name sounds familiar, “Roaring Kitty” just so happens to be Keith Gill — the man who kicked off 2021’s infamous Meme Stock Rally.

After Gill’s posts and videos went viral on Reddit’s WallStreetBets community three years ago, the share price of GameStop Corp went parabolic … soaring to an all-time high of more than $483 per share before coming back down to Earth.

Now Gill has returned, posting for the first time since early 2021.

And just like then, GME shares are soaring.

The stock rose so fast on Monday morning that it triggered the New York Stock Exchange’s “circuit breakers,” halting trading not once but twice.

GME reached a peak gain of more than 110% on the day before closing 72% higher at $30.45 per share.

So … what comes next?

Was Monday’s big move a fluke for GME, or are the floodgates about to open for a whole new generation of “Meme Stocks?”

To answer those questions, we first need to take a quick glimpse at how this all got started.

A “Dumb Money” Revolution

In January 2021, a hodgepodge group of retail investors made stock market history — orchestrating the stock market’s first-ever “grassroots” short squeeze.

It all started when Gill noticed GME’s “short interest ratio” was over 100%.

That meant Wall Street’s biggest short sellers would need to buy back all the available shares on the market (and then some) just to cover their bets.

Gill realized that if he and other investors simply bought and held some of these shares, they’d have the short sellers over a barrel — causing share prices to skyrocket.

Gill was right. And his posts snowballed online before growing into a revolution.

The story captivated investors because it wasn’t a typical battle between hedge fund masters of the universe.

It was David versus Goliath.

And before it was over, an army of underdog “Main Street” investors wrecked their Wall Street adversaries — the professionals who’d heavily shorted the stock.

Melvin Capital, a hedge fund that was one of GME’s biggest short sellers, went out of business just a few months later.

The whole crazy affair was even made into a big-budget Hollywood blockbuster called Dumb Money, which ironically bombed at the box office last year.

But despite all the engagement and the short-lived excitement, the meme stock movement wasn’t really going anywhere.

Until yesterday…

A Sequel to GameStop’s Legendary Run?

The Meme Stock Revolution wasn’t a joke.

It was an amazing moment for investors all over the world.

A handful of greedy Wall Street funds were casually shorting an American business into the ground. And an army of retail investors punished them for it.

But once bitten, twice shy.

Short sellers have become far more careful about spreading their bets around, and as a result, GME’s short interest ratio is down to just 24%.

By shorting more than 100% of GameStop’s available shares in 2021, Melvin Capital and other short sellers effectively backed themselves into a corner.

And no one is eager to repeat their mistake.

Aside from the reaction to the one post on X, nothing material has really changed for GME.

It’s still a business based around brick-and-mortar retail locations for physical copies of video games — putting it squarely at the intersection of two dying markets.

Right now, its Green Zone Power Ratings sit at a “Bearish” 22 out of 100, meaning my system expects shares of GME to underperform the broader market in the long run:

GameStop stock rating

GME’s Green Zone Power Ratings in May 2024.

That said, the market can stay irrational longer than you can stay solvent.

As I said, GME has a cultish following, unlike any other stock on the market.

Just one of GME’s many user-curated Reddit groups currently has over 942,000 members, and many of these “true believers” are itching for a reason to go all-in on the stock.

And the return of their long-lost meme king was just the ticket for getting the hype train back on the tracks.

With this kind of built-in interest, GME’s shares could potentially keep rising.

Just one thing…

This isn’t 2021, and there’s not a clear catalyst like a short squeeze driving this rally.

I’ll be eagerly watching as the next chapter of this story plays out — but I’m still sticking with recommending more off-the-radar opportunities…

Like the world’s No. 1 leader in cutting-edge “Closed AI” technology.