This latest round of meme-stock mania in Gamestop (NYSE:GME) may be ending fast. GME stock — which began trading divorced of its fundamentals at the start of the year — has fallen around 30% since its Jun. 9 close.
The renewed enthusiasm in former favorites of Reddit’s r/WallStreetBets subreddit may be holding on much better in AMC (NYSE:AMC). But in this particular name? It appears to be sputtering out.
Without that enthusiasm, there’s not much else to sustain GME at today’s still-inflated prices. And if speculators continue to buy stocks based on momentum and hype? Even if the Reddit trend continues, it may be other plays — not these two longstanding ones — that would be your best opportunity.
In other words, you may be able to find a better, more profitable trade in the secondary meme stocks. So, what’s your best move here? It’s time to move on from GME and look to other stocks with high short-interest — especially the ones that are trending on r/WallStreetBets.
Enthusiasm for GME Stock Is Cooling Down Again
Why are Gamestop shares pulling back? One major factor was the company’s latest earnings report, which highlighted how much the stock trades above its pay-grade. This has played a big role in its double-digit declines over the past week. However, there’s another important factor causing the end of its latest parabolic run.
In my last GME stock article, I discussed the chances of the play’s latest meme rally pushing it back to the high of $483 per share. My view? It was possible — but only if short-sellers continued to refuse throwing in the towel. Unfortunately for the investors still holding GME with “diamond hands,” this now doesn’t appear to be playing out.
That is, shorts have realized it’s futile to fight the Reddit-stock army. Short-interest as a percentage of float stood at 29.3% on May 28. But now? According to estimates from S3 Partners, short interest may currently be around 19.4% of outstanding float.
True, shorts may have plenty more shares to cover. And, even at this relatively lower level of short interest, there may be potential for another squeeze. Yet, if more shorts wise up, this percentage could continue to come down. Plus, given that GME trades at many times its maximum potential value, there’s still probably only one direction for it to go: lower.
Other Plays May Give You What You’re Looking For
So, the meme-stock trade may be finished with GME stock. Those buying in today for possible fast profits may end up with fast losses instead. The easy money has already been made here. However, that doesn’t mean you can’t still find similar plays.
What do I mean? Well, there are scores of heavily shorted stocks — some of which have already seen squeeze-driven rallies. Now, retail traders need a place to plow their Gamestop and AMC profits. Plus, newbies are still entering the market, looking to make similar wagers. With this, there may be room for a few names to experience another round of mania. These could include Bed Bath & Beyond (NASDAQ:BBBY) and Clover Health (NASDAQ:CLOV).
In addition, as InvestorPlace’s William White recently reported, there are some stocks that aren’t as heavily shorted but could still see a boost thanks to increased mentions on r/WallstreetBets. These include Corsair Gaming (NASDAQ:CRSR) and Clean Energy Fuels (NASDAQ:CLNE).
Put simply, the meme-stock trend isn’t fully over just yet. But it’s all about focusing on what will be the next beneficiary of the speculative frenzy.
The Bottom Line on GME Stock
Even as the pandemic continues to enter the rearview, scores of retail traders who started dabbling in stocks during last year’s lockdowns don’t appear to be slowing down. It kicked off as the “Robinhood stocks” phenomenon last summer. If you recall, retail traders made logic-defying profits, diving into picks hard-hit by the outbreak — including some bankrupt ones.
Then, as r/WallStreetBets became a popular source for trade ideas, retail traders beat Wall Street at its own game by squeezing them on Gamestop and AMC. In addition, they bid up special purpose acquisition company (SPAC) stocks, “green wave” stocks and even penny stocks (high-quality or not). Things cooled for a bit in the spring, as much of this retail money shifted to crypto. But, as seen following May’s crypto crash, small investors are again dabbling in stocks in a big way.
Yet, while the meme-stock trend is still alive and well, don’t expect it to help out GME stock much longer. As the shorts cover and Reddit sets to explore new frontiers, you should follow suit.
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On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.