The meme stock surge doesn’t appear to be the ominous signal it has been

By Investor Empires On May 8, 2024

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Meme stocks are making headlines again.

Household names that captured investors' imaginations in 2021 — like GameStop (GME) and AMC Entertainment (AMC) — are rising higher (and lower in some cases).

Although the sudden emergence of meme stock volatility once served as a risk warning for stocks in years past, the increases in 2024 appear to indicate a healthy risk appetite for investments.

In a crucial break from previous trading bouts, much of the recent meme stock volatility is being fueled by hard news and fundamentals, such as earnings, unlike Reddit (RDDT) posts.

In an ode to the “Mighty Seven” stocks that have captured investors' imaginations — and sometimes tested their patience — we've selected seven popular retail-oriented names that have, at one time or another, been labeled meme stocks in the spirit of the prevailing zeitgeist.

Not surprisingly, the top of the list includes the two big companies, GameStop and AMC. To these we add: Carvana (CVNA), Beyond Meat (BYND), Kodak (KODK), Palantir (PLTR), and Coinbase (COIN).

To see the clusters of volatility in these seven names, we measured last-quarter volatility and aggregated any significant moves (at least three standard deviations or more to be precise), up and down, for all seven names over a rolling window of five. days.

The series high is 14 and was recorded on January 28, 2021 – the height of the GameStop craze.

When these meme stock signals are superimposed on an S&P 500 chart, they can sometimes appear to warn of an impending general market reversal.

This was the case during the 2022 bear market and the start of the next bull (highlighted by the red box), when the meme's volatility was preceded by four general market downturns.

During this period, when meme stocks soared and made headlines, it was just a case of lagging behind. New long trades were quickly met with a sharp reversal that punished dip buyers.

In contrast, since the October 2023 lows, volatility signals do not appear to have predictive value about the general market. One can happily conclude that this is just a risk-filled bull market where a rising tide in the market causes meme stocks to rise as well.

If your portfolio is up this year, you may not need seven meme stocks to tell you the market is in good shape.

Basing stock performance on earnings and fundamentals rather than memes means quarterly results can actually matter. Which Palantir investors, after seeing the stock fall 14% on Tuesday following Monday's results, learned the hard way.

And now, on Wednesday, two major players are stepping up to deliver more meme-centric quarterly results: Robinhood, the original accelerator-turned-villain of the movement, and blue-chip meme company AMC. Not only are they following Palantir, they're probably following the original source of the entire meme movement — Reddit, which first went public on Tuesday.