We’re still seeing huge surges in meme stock activity, and Bank of America is pointing out which of the new rising equities Reddit traders are targeting.
AMC is still ranked first on the list of meme stocks. Its mentions on WallStreetBets have risen for the third week in a row, with over 5,000 comments since May 26. Mentions are at their highest since February, following GameStop’s epic short squeeze.
Bank of America warned clients that AMC’s more than 2,000 percent rally in 2021 could begin to wane.
“AMC exhibits all three signs that its rally may be coming to an end (acceleration in price and stock volume, increase in volatility, and a turn lower in the call-to-put volume ratio),” Jill Carey Hall, equity and quant strategist at Bank of America, wrote in a note to clients.
On Reddit, GameStop is the second most-mentioned stock. However, the number of online comments has been decreasing. The stock received over 3,600 mentions two weeks ago and approximately 2,670 comments in the last week.
According to Bank of America, GameStop and AMC still have 21 percent of their float shares sold short, compared to a typical U.S. stock’s 5 percent short interest.
Zillow Group, an online real estate marketplace, and Bed Bath & Beyond, a retailer, have both joined the list.
In the last week, Zillow received 50 mentions on Reddit and Bed Bath & Beyond received 24 mentions. Furthermore, according to Bank of America, Zillow has 13 percent of its float shares sold short, while Bed Bath has 32 percent.
“For the first time in our dataset since August, Zillow (Z) made our top 20 screen among those with high short interest. And Bed Bath & Beyond (BBBY), one of January’s “up-crash” stocks, entered the top 20 for the first time since early February. “Shares have begun to surge again this week,” Hall said.
Bed Bath & Beyond’s stock is up about 25% this week.
Virgin Galactic, a commercial spaceflight company, is the third most-mentioned name on Reddit. The stock has 24% of its float shares sold short, according to BofA.
Beyond Meat, which Bank of America identified as a new stock to watch a week ago, has seen mentions increase and now ranks fourth. Beyond Meat’s stock is up about 12% this quarter.
Other companies on the list included Athene Holding, Plug Power, Antero Midstream, Academy Sports and Outdoors, and Clean Energy Fuels.
Hedge firm Melvin Capital experienced losses in the historic GameStop short squeeze, while Robinhood, a prominent brokerage, was also need to raise extra capital to fulfill the liquidity needs of the market. There were worries that the financial well-being of the country was threatened, causing a sudden surge in market volatility.
“While AMC is very interesting and exciting to watch, it does not pose the same threat that GameStop did at this point,” The Sevens Report founder Tom Essaye said. “We haven’t heard of any funds or brokerages experiencing stress as a result of it.” We hope that GameStop taught everyone a lesson.”
The trading frenzy in January compelled Robinhood to tap credit lines, raise new funds, and limit trading in several short-squeezed stocks. According to the trading platform, the central Wall Street clearinghouse mandated a tenfold increase in the firm’s deposit requirements to ensure smooth trade settlements.
Meanwhile, Melvin Capital suffered a significant loss in GameStop, raising concerns that the hedge fund may fail. Citadel and Point72 invested nearly $3 billion in the fund to shore up its finances.
“In the case of AMC, the market doesn’t have to learn the same lesson twice,” Essaye explained. “I’d imagine that any of those firms and brokerages that survived or were frightened by GameStop are now taking precautions to protect themselves from some of that risk.”
AMC’s stock has risen nearly 140 percent this week through Wednesday’s close, as retail investors increased their bets on the struggling movie theater chain. On Thursday, the stock was down about 8% after the company announced plans to sell more than 11 million shares amid the trading frenzy. AMC later announced that the stock sale was completed, raising $587 million.
AMC’s short interest, while significantly higher than the average US stock, is nowhere near GameStop’s during the trading mania. According to S3 Partners data, AMC has approximately 18% of its float shares sold short. In January, GameStop had more than 130 percent of its shares borrowed and sold short.
Furthermore, the broader market has been in a holding pattern for the past two weeks, with the S&P 500 sitting less than 1% off its all-time high. Investors are largely on hold until Friday’s May jobs report. Wall Street is also looking for more clues from the Federal Reserve about how it plans to taper monetary policy. Given the lack of market-moving events recently, there may have been an over-emphasis on AMC.
Nonetheless, some argue that history may repeat itself, with short sellers being burned by manic speculative trading. If hedge fund losses in bets against the stock mount, there may be a pullback in risk-taking across Wall Street, affecting the overall market.
According to S3 Partners, short-sellers who bet against the stock lost $2.8 billion on Wednesday as the stock surged 95 percent. According to S3 data, this brings their year-to-date losses to more than $5 billion.
“It’s no different outside of the high-profile hedge funds that got caught short in February, but I’m sure some got caught again this time,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “We’ve seen this type of behavior many times in market history, and this is no different, and it will eventually flame out, as all manias do.”