The Gamestop Bulls Are Back, and That’s a Bad Sign for Stocks

Another “meme stock” short squeeze could be underway this morning as the general market trades flat. Equities initially jumped higher at the open before paring back their gains, with much of the enthusiasm being driven by banks. Pre-market comments from bank officials talking down inflation (once again) eased investor fears.

Futures trading pointed to a potentially strong session.

But by noon, only two major stocks were up in a significant way.

GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC) both soared over 10% in the early hours of trading. By midday, GME gained over 16% while AMC enjoyed an 18% boost of its own.

And yesterday, both stocks also saw massive jumps. GME closed for a 16% gain and AMC did even better, rising almost 20% on the day.

Over the last week, GME’s up 30%. AMC is up over 50%.

Analysts are pointing to other oversold assets for causing the recent GME and AMC bump. Bitcoin got crushed in a “flash crash” last week. The broader crypto market is still trying to find its legs.

And the stock market is stalling, too. Bulls look fatigued after a big-time late March/early April run-up. For “moonshot-seeking” traders, GME and AMC may represent the last good opportunity for a quick, windfall gain.

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“I believe the bounce back in these thematic names are a function of two components: the oversold conditions that currently existed in GME & AMC due to the bitcoin pullback and profit-taking,” explained Jeff Kilburg, chief investment officer and portfolio manager at Sanctuary Wealth.

“I also believe the newly injected investor confidence with U.S. equity markets hovering near all-time highs makes a difference. High tide lifts all boats,” Kilburg added.

It’s the kind of behavior that typically happens at the end of an economic cycle. These days, investors are expected to take big risks to get ahead.

Over the last year, that type of trading has been rewarded time and time again. Explosive speculative bursts in crypto turned millionaires into billionaires in a matter of months. A now-former Goldman Sachs boss quit his job after profiting a fortune from his Dogecoin (DOGE) investment.

Much like GME and AMC, Dogecoin was pumped by internet speculators. For years, crypto investors called it a “joke cryptocurrency.” Or at least they used to before it erupted for a mind-boggling gain. Despite selling-off recently, DOGE is still up over 7,000% on the year.

And now, many “ex-Dogecoiners” are looking for the next best thing. GME and AMC are probably it.

So, enjoy the “meme stock” burst while it lasts. It could certainly go higher from here. Honestly, I hope it does.

Because the sooner the market gets this kind of speculation out of its system, the better. Equities are in dire need of sobering up. The Fed is eventually going to pull the plug on liquidity.

And if stocks keep climbing, they’ll have further to fall when it happens. Speculative short-squeezes almost crunched stocks before via hedge fund bailouts.

This time, though, inflation and “taper talk” loom overhead as well, threatening to torpedo the market independent of any speculative swings.

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