Momentum trading is nothing new. Traders and speculators have jumped into stocks hoping to catch the train to massive gains based on little more than rumors for as long as there has been a stock market to speculate on.
Recently though, new trading technology and social media has enabled the rise of a new kind of momentum trader, one whose goals are often quite different from speculators of the past.
These new retail traders aren’t only in search of quick profits, they’re looking to take on Wall Street and to beat The Man at his own game.
In 2021, using social media platforms like Reddit, Twitter, and StockTwits, “meme stock” retail traders came together, employing the power of their combined and leveraged capital to hit back at institutional short sellers.
Inspired by movements of the past like Occupy Wall Street, the meme stock crew realized the power short squeeze conditions have to drive up stock prices and ruffle institutional feathers. AMC is the perfect example of this phenomenon.
On December 30, 2020, AMC was a struggling movie theatre chain bruised by the pandemic. Its stock was trading around $US2 ($AU3) per share and Wall Street institutions had been raking in millions from short bets against the firm amid the public health crisis that prevented audiences from frequenting theatres.
But in January 2021, the meme stock movement began. Traders on social media platforms started a haphazardly coordinated effort to force a squeeze in heavily shorted stocks, causing prices to skyrocket.
Their first targets were GameStop and AMC. AMC’s shares rose over 300% in a single day on January 27.
Short sellers lost billions in a matter of hours as a result and meme stock momentum traders celebrated their first blow against their institutional adversaries.
The main goal of the meme stock crowd at the beginning may have been simple, short-term profits, but as time went on, the movement found a more cohesive message about the often unfair playing field that retail investors are forced to operate in.
Yet, while meme stock traders hoped to stick it to institutions, they ended up simply picking winners and losers among them.
On the winner’s side were hedge funds like Mudrick Capital, which bought over 8 million share of AMC after a meteoric rise in the stock price, and then immediately sold them for huge gains after retail investors pushed the stock price up even further.
AMC insiders also cashed in during the Reddit phenomenon. CEO Adam Aron saw his wealth boom by some $US200 ($AU272) million at one point and even gifted his sons $US30 ($AU41) million of AMC stock.
Still, the retail crowd did prove one thing-that they too have the power to move markets, and with coordinated efforts, taking on institutions is no longer a pipe dream.
This nonfungible token, or NFT, is a unique piece of memorabilia from a historic time for AMC and retail traders.
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