Bed Bath & Beyond gains nearly 138% in a month - "meme stocks" on Wall Street's lips again

10.08.2022 12:41|Conotoxia Ltd Analyst Team

Bed Bath & Beyond(BBBY), AMC Entertainment (AMC) and GameStop (GME) have again become targets of speculation by retail investors. The share price of the companies above had risen 138%, 60%, and 34%, respectively, in the past month as of 1:00 p.m., ahead of Tuesday's opening of the US stock market. The first is engaged in the sale of home accessories, the second is a well-known cinema chain, and the third is a popular chain of stationery stores for games and electronic devices.

Most likely, we can already talk about the phenomenon of a short squeeze on these shares. It involves "squeezing" short-sellers by elevating the price and forcing them to close their positions at a loss by buying back shares and pushing the price even higher. Retail investors have been popularizing BBBY, AMC and GME for months in an effort to take advantage of the excessive short positions of institutions.

The short squeeze would undoubtedly be hampered if we saw massive declines of indexes. However, exaggerated optimism during the current bear market rally may have caused a rise in valuations beyond their legitimate levels, and secondly, a herding effect that could prove tragic for short sellers.

Recent increases in major global markets, especially the US, are most likely due to investors' over-optimism and the rebound from the declines of the first half of 2022. An important factor here is the expectation of falling inflation in July. However, the current situation resembles most of the bull traps of the early recessions. Rallies of several dozen per cent are their bread and butter.

Short-sellers of the mentioned stocks are most likely experiencing a large unrealized loss and are afraid of further price pumping, not knowing where the limit of madness lies. Moreover, they know that by closing the position, they could elevate the price even further. So they are faced with the following dilemma - is it better to close positions now when others taking a short position have not managed to do so and the price still has not shot up?

In the perspective of a fundamentally bad macroeconomic environment, such upswings could foreshadow a big collapse in the valuations of the "meme stocks", as more bad data starts pouring in from the economy in the coming quarters. However, it is unclear where the limit of these speculative gains lies.

 

 


Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service)

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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71.98% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71.98% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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