Shares of GameStop spiked more than 100% Wednesday in a late-day trading frenzy that saw names popular on Reddit — such as AMC Entertainment and BlackBerry — also log huge gains. Trading was halted on GameStop shares with less than 30 minutes left in the trading day. The halt sent traders rushing to Reddit, which crashed for many users for about an hour on Wednesday evening. Shares shot up another 83% after hours.
The stock then jumped another 50% on Thursday morning, forcing trading to halt just minutes after the opening bell. As of midmorning Thursday, shares had risen about 40% from the opening bell for a total gain of more than 180% from Wednesday's open.
The parabolic move is giving market-watchers déjà vu and has traders wondering if this is a repeat of last month's market mayhem or something different. "It's too early to tell exactly what's driving this second round," says Doug Boneparth, a certified financial planner and the founder of Bone Fide Wealth in New York City. "The big questions I would have are, is there now more attention going toward fundamentals? Is there something we're missing about these stocks having greater long-term value? It's easy to say no, the fundamentals are still garbage. But it's enough to make you second-guess yourself."
Overall, the advice for long-term investors remains the same, experts say: Stick to your investing plan and ignore speculative trades.
The reasons for the move are still unclear. One possible catalyst: GameStop's announcement Tuesday that chief financial officer Jim Bell would resign on March 26.
GameStop executives including Chewy founder Ryan Cohen — whose appointment to the board helped drum up interest in the stock in January — forced Bell out in order to execute a planned turnaround more quickly, Bloomberg News reported Tuesday.
Video by Helen Zhao
Regardless of what impulse drove the trading frenzy, the mechanics behind the meltup have been the same, say Sam Stovall, chief investment strategist at investment research firm CFRA. "Retail investors with access to commission-free trading are causing these stocks with tremendous short interest to soar again," he says.
As of Tuesday, short interest in GameStop shares sat at 45%, according to S&P Capital IQ — a high level that indicates that shares once again underwent a short squeeze.
It remains to be seen how long volatile "meme stock" trading will continue. "It was like a Marvel movie — we had gotten to the end of the credits, and then we saw the preview for the next flick," says Boneparth. "That's going to start tomorrow. And you'd be a fool to think anyone has more answers than questions at this point."
One thing is for sure: Participating in these trades is a very risky, if tantalizing, proposition. "We are hypersensitive to what people are doing around us," says Brad Klontz, a CFP and financial psychology professor at Creighton University. "Investing in these stocks isn't as much about greed as it's about fearing being left behind."
Video by Helen Zhao
It may be tempting, then, to think that, having seen what happened last time around, there's money to be made trading meme stocks this time. But tread carefully, says Stovall. "Chances are, those people who think they're going to be getting in with plenty of room to the upside to spare might find out that they bought at the top," he says.
As long as trading is free and easy, and as long as the bull keeps galloping, these sorts of trading frenzies are likely to keep cropping up, Stovall says. And as long as people on social media keep touting money they've made on the trades, retail investors will be interested. Stovall says his nieces have called him to ask about meme stocks in recent weeks.
"I told them, swear to me that you won't get involved in options or leveraged trading," he says, referencing a type of trading that involves buying or selling shares with borrowed money. "The last thing you want to do is lose more than your principal. It would not only be bad for your net worth, but it could also cause you to shy away from the only type of investing that outpaces taxes and inflation — and that's investing in equities over the long term."
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