Meme stocks are rising again, which could be good news for the risk rally: Morning Brief
This is the conclusion of today’s Morning Brief, which you Sign up to receive it in your inbox every morning, along with:
Since their collapse in early August, share prices have recovered strongly.
In the two weeks following the August 5 lows, the market capitalization of the S&P 500 increased by $3.7 trillion, with the shares of the Magnificent Seven accounting for $1.6 trillion.
While Nvidia (NVDA) and artificial intelligence trading are leading the recovery, the risk-on rally is marked by broad participation – even from often-forgotten corners of the market like meme stocks.
In May, we introduced Yahoo Finance’s proprietary five-day volatility trigger for meme stocks. The list of stocks includes meme heavyweights GameStop (GME) and AMC Entertainment (AMC), as well as Carvana (CVNA), Beyond Meat (BYND), Kodak (KODK), Palantir (PLTR), and Coinbase (COIN).
Any upward or downward movements among the members of this group that are greater than three standard deviations, measured over the last quarter, are recorded and aggregated. If at least three triggers occur within a five-day rolling window, a signal is generated.
Since the August 5 low, Carvana, Palantir, Beyond Meat, and Coinbase have each seen volatility triggers – with the composite signal reaching a high of 7 on August 9.
(The highest signal value ever recorded – dating back to December 2020 – was 14 and was recorded on January 28, 2021 during the original GameStop hype.)
As outlined in May, meme stocks were once a reliable Opposite Signal during the 2022 bear market. Investors followed every rally, no matter how young, by bidding up the prices of the laggards – just before the overall market tipped over.
However, this has not been the case for most of this bull market, as signals have been spread out throughout the price rally. And the recent signals have been generated closer to the start of the rise.
In fact, the recent price movement of meme stocks that triggered the volatility seems to be explained by idiosyncratic factors and general market volatility rather than by latent memelikeness.
Palantir, for example, issued an optimistic earnings forecast on August 5, but recorded a loss of 14 percent at the start of trading that day as the yen rose sharply, and was down 2.6 percent by the close.
Coinbase’s returns have risen and fallen recently with the successes of cryptocurrencies and Bitcoin. And Carvana reported earnings on July 31, leading to a significant rebound on August 1 – just before the general market turmoil.
One exception may be Beyond Meat, whose share price rose by 40% on August 9 for no apparent reason.
The proposition of pure meme trading – those inexplicable rises that defy any fundamental or rational justification – is still relevant for the modern trader.
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