In a few days, the meme rally that sent GameStop Corp.’s stock skyrocketing this week will probably end, according to Dan Raju, CEO of cloud-based financial services company Tradier.
“This is a transient, irrational hysteria,” he informed MarketWatch. It doesn’t have any foundational principles. It is predicated on a few securities that have social resonance.
“I think this will fade out in a day or two,” he continued.
Raju is not the only observer pointing out the discrepancy between the fundamental performance of the company and the movement in GameStop GME, +60.10% shares. According to Raju, this rally differs significantly from the meme-stock heyday of early 2021, which was sparked by the unique circumstances of the COVID-19 pandemic. He remarked, “The macro drivers were very different then than they are now.”
Like fellow meme-stock darling AMC Entertainment Holdings Inc. AMC, +31.98%, GameStop benefited greatly from the January 2021 meme-stock buying frenzy. Reddit users who follow WallStreetBets helped to boost the shares of the struggling videogame retailer. GameStop saw a rise in stock price of over 1,200% and a rise in market capitalization to over $17 billion between January and March of 2021. With the recent surge in meme-stock values, GameStop’s market capitalization has reached $9.32 billion.
According to Raju, however, there has been a “graduation” effect and an increase in sophistication among retail investors since 2021.
GameStop’s stock increased by 47.7% on Tuesday following a 74.4% gain on Monday. After closing higher by 78.4% on Monday, AMC’s stock is up 30.1% on Tuesday.
The CEO of Tradier claims that the recent surge that has sent shares of GameStop and AMC skyrocketing also reflects broader market trends in recent months. Investing in short-term trades is what retail does generally. A symptom of that trend are the meme-stock rallies, he claimed. “There are now more trades involving options. More people than ever before are trading options.
In light of this, Raju emphasised the rising interest among retail investors in so-called zero-day-to-expiration options. “Investors are making money on things that nearly instantly expire. Many of them trade 0DTEs, the speaker claimed.
Raju also mentioned the market’s pent-up demand following the Federal Reserve’s recent interest rate announcements. He claimed, “They were expecting rate cuts that never materialised.”
