One of the most iconic moments of the previous bull market was the incredible short squeeze in meme stocks. It was symbolic of many trends and narratives of the pandemic such as people staying at home, bored and flush with stimulus paychecks.
Of course, the extraordinary moves in these stocks and pain felt by short-selling hedge funds captured people's imaginations as it inverted the typical powers structure of Wall Street hedge funds vs retail traders. Of course, the reality is much more complicated.
However, it was certainly the first time that traders were able to coordinate a short squeeze on social media. And, it's understandable that many of these stocks had high short interest given that these businesses are in sort of a secular decline with high debt loads and their long-term viability is threatened by technological trends. Not to mention that consumer businesses, especially of the retail variety tend to go bankrupt and disappear routinely.
Not surprisingly, these 'meme stocks' peaked along with the broader market in the early months of 2021. Since then, they have been trending lower. For instance, Gamestop
It's quite interesting that these stocks are finding a bid during the current bear market rally in which the S&P 500
All 3 of these stocks are up by more than 100% from their lows. And, there is a vigorous debate on whether this means that the retail trader remains engaged and active in the market as we are also seeing an explosion in short-term call option volume and outperformance in retail favorites like the ARK Innovation ETF
The discussion is germane as bull markets typically bottom when retail traders capitulate and are uninterested in the market. Others, who argue that the current advance is a new bull market rather than a bear market rally, attribute the strength to a strong infusion of liquidity into the markets via the indices, with some money flowing into these highly-shorted stocks which can cause explosive moves higher.
