While analysts were busy speculating on possible inflation data in the U.S., WallStreetBets speculators seem to be back at it again.
Notably, with the return of Keith Gill or Roaring Kitty to social media after three years, GameStop shares soared 74%, while AMC Entertainment shares jumped 78%.
Once again, the catalyst appears to be forced short covering, which caused hedge funds to suffer losses of $838 million in market value.
Specifically, purchases to cover short positions, associated with short position compression, fueled a rapid rise in GME stock prices. It's almost ironic, given the lessons learned from the events of two years ago....
What lies ahead?
The last time around, GameStop's mania pushed its stock above $120 a share, split-adjusted, in early 2021, from as low as $3 in just three months.
Will history repeat itself?
It remains unknown. If investor interest is short-lived, the stock could plummet. However, jumping on the short train sounds like playing with fire at this juncture.
Fundamentally, the company is not in good shape. For example, GameStop's fiscal fourth-quarter revenue was $1.79 billion, down from $2.23 billion a year earlier.
Moreover, while the upward movement may be significant, the outstanding shorts on assets like GameStop are much smaller compared to 2021, suggesting a potentially smaller impact.
What if we are witnessing a second wave of meme stock mania?
In that case, it's worth remembering that stocks like BlackBerry, Clover Health, Tesla, Nokia, and Tilray Pharmaceuticals were also the darlings of YOLO traders three years ago.
Whether it is wise to join the fray now depends on one's risk tolerance and conducting thorough research beforehand. Participating in such frenzies is always risky and does not guarantee profits. However, the losses from participating in options can be substantial.
Will these developments spread to the cryptocurrency market?
They already have. Although the Bitcoin price did not react much, some memes increased considerably. Among the most prominent were Meme, Pepe, Floki, Popcat, and Gamestop coins.
Some even argue that GameStop's short squeeze has set the stage for a massive rise in Dogecoin and Shiba Inu. Whether this will happen, time will tell.
In general, of course, trying to make money on such events is like playing roulette in a casino. In such cases, only a few people win.
However, if you do muster up the courage to try and jump on the train, don't forget about risk management and setting a trailing stop loss to limit the potential pain.