Meme stocks surge as tech rally gets too pricey for retail investors

KOSS

25/07/2023 18:56

By Bansari Mayur Kamdar
       July 24 (Reuters) - Meme stocks have surged in the last
few weeks as retail investors shun pricier stocks for cheaper
speculative names, but some experts worry that this could choke
the current rally in broader markets.
        At a time when the wider rally has made some stocks,
especially in the tech space, too expensive, the return of meme
stocks is offering retail investors a more affordable option to
participate in 2023's market rebound and pocket big returns. 
  
        Roundhill's Meme index  .MEME  hit a one-year high last
week and was last up 60% for 2023 so far, dwarfing gains of more
than 18% recorded by the benchmark S&P 500  .SPX . 
    The NYSE FANG+ index  .NYFANG , housing megacap technology
and growth stocks like Microsoft  MSFT.O  and Alphabet
 GOOGL.O , has climbed 77% so far this year.   
    "Some of the retail animal spirits are coming back, but it's
a little bit more complex than the first time around," said
Thomas Hayes, managing member at Great Hill Capital. 
    "There's widespread panic-buying and catch-up trade from
those who risk going into the year-end flat while the S&P is up
18%." 
    Retail investors poured in $1.27 billion per day on average
into U.S. equities in July, closing in on the all-time record of
$1.5 billion a day in March, Vanda Research said.
    "What we have seen historically is that when short squeezes
are happening in some of these zombie-like companies that are
burning cash or in really beaten down names, that's usually more
indicative of a sign of the end of the bull market as opposed to
beginning," said Dennis Dick, market structure analyst at Triple
D Trading.
    The meme index consists of 25 equal-weighted U.S.-listed
stocks with a combination of elevated social media activity and
high short interest. It is rebalanced every two weeks.
    Recent examples of rallies include a 33% jump in shares of
cinema operator AMC Entertainment  AMC.N  on Monday and a 40%
rise in shares of troubled used-car retailer Carvana  CVNA.N 
last Wednesday.
    Net retail investor flows into Carvana hit their highest in
over a year last week, before sliding a little on profit-taking,
according to data by Vanda Research, while flows into AMC
touched 11-month highs on Monday.
    Shares of Carvana, which is also the top holding of
Roundhill's meme index with a nearly 5% weighting, are up about
850% so far this year but are still far from their all-time
highs hit during the meme stock mania of 2021. 
    About 28.1% of AMC's publicly available shares are under
short position, according to data by analytics firm Ortex, while
55.2% of Carvana's free float shares are shorted.

 (Reporting by Bansari Mayur Kamdar in Bengaluru; additional
reporting by Lance Tupper in New York; Editing by Devika
Syamnath)
 ((BansariMayur.Kamdar@thomsonreuters.com;  Twitter:
@BansariKamdar;))