If I haven’t said it before, I’m saying it now. I have a huge disdain for meme stocks mostly because they are a result of improper market behavior. Translation: I can’t get rich off them, so I hate it when other people do.
The whole idea of a free market structure is that the price at any time should, theoretically, represent the sum total of all known public information to arrive at a true valuation for a security. As is usually the case with mathematical or economic theorems, however, reality is often much messier. The meme stock craze was possible because these companies were heavily shorted (as they were fairly unprofitable and seemed worthy of a large decrease in stock price).
At the same time, the hive mind of “Wall Street Bets” gamblers basically agreed to all buy call options collectively, forcing the brokerages to purchase the underlying stock to offset their own risk. Why did this succeed, and furthermore, why hasn’t it happened before? Well, the catalyst spark was certainly the advent of the internet chat forums like Reddit and traders skirting the lines of what defines market manipulation (I think it was legal and all, but certainly will be food for thought for the SEC in the future), but the pool of gasoline that exploded was simple the trillions of dollars being pumped into the economy nonstop for almost a decade.
If the faucet of dollars was turned off then the probability of the meme stock mania occurring were slim to none. The shorts on these companies would have succeeded as the free market did what it does and allowed those zombie companies to die. I think of the meme stock craze as the opposite side of the coin of naked shorting, when shorts could freely short a stock for more shares than the actual float of a company. Well, now that my bitching is out of the way…
I’ve been waiting for the king of the meme stocks, GME, to die and every time it looks like it is ready to fall it manages to get bid up. I’m hoping this is finally a nail in the coffin for this one, though. There are 2 notable zones about this stock. First, the 200 Day Moving Average was support until December 2021 when it crossed under. Ever since, this has attempted to get back above it for another squeeze, failing each time.
This attempted to actually stay above the 200 Day average since the beginning of June, but this isn’t the golden cross which I’m sure investors were hoping for. This has seen lower highs and is barely staying above this average now. It looks like it wants to break down. The second notable thing is the $22 level which has acted as support thus far. Like the 200 Day average, it has pierced this level before, only to be bought back up. But this is about to get pierced again.
I am expecting a move similar to the last breakdown to take this down towards $15 again (at a minimum). My ultimate target on this stock is between $5 and $10. Now I know I may be viewed as a perma-bear, but this is a company with negative EPS. Even in a BULL market this thing deserves to be, at most, $5. So this is my bullish/rosy view of this stock. If we were in a true bear market, this company would head to zero. It may take a month, it may take a year, but at some point, this will need to give up this ground before true valuation is found. But the fact is the meme crowd is still too eager to try to squeeze this again. But when it comes to tricks like that, the same trick won’t work twice.
