Here we go again.
It appears that meme stocks are back in play as several infamous names once again takeoff and their share prices rise incredibly high. Well-known companies such as Bed, Bath & Beyond (NASDAQ:BBBY), AMC Entertainment (NYSE:AMC) and BlackBerry (NYSE:BB) are jumping higher in morning trading, most of them for seemingly no reason. This comes after shares of car rental company Avis (NASDAQ:CAR) more than doubled in yesterday’s trading session.
What Happened With Meme Stocks
Shares of Avis closed up 108% yesterday at $185.70 after the company reported blowout earnings. At one point, CAR stock was up more than 200%. However, shares of the rental car company are down 17% today. At the same time, Bed, Bath & Beyond’s stock rallied more than 50% overnight after the company made several announcements, most notably a new partnership with the Kroger (NYSE:KR) grocery chain.
The massive moves higher in both CAR and BBBY stocks is being attributed to a short squeeze, where traders who have short positions in a stock are forced to quickly buy those shares to stem their losses. Both Avis and Bed, Bath and Beyond were heavily shorted by professional traders on Wall Street. At the same time, several other so called meme stocks are also marching higher.
Shares of AMC stock are up 5% in the premarket, while BB stock has risen nearly 3%. These companies stocks are getting increasing mentions on social media channels, which helped to drive their share prices to new heights at the start of this year.
Why It Matters
The spectacular rise and fall of meme stocks earlier this year threw Wall Street into a tizzy and prompted Congressional hearings into the integrity and safety of U.S. stock markets. While the traders who instigated the meme stock rally made lots of money, many individual investors lost their shirts when the stocks crashed back to earth. This prompted lawmakers to step in with promises of protecting retail investors from what has been characterized as a “lawless” stock market.
Should a new meme stock rally become widespread, it will likely put pressure on regulators such as the U.S. Securities and Exchange Commission to step in with new safeguards aimed at protecting investors. The meme stock rallies also wreak havoc at investment banks and among institutional traders who take short positions based on the underlying fundamentals of a stock only to see their trades blown up by day traders with online names such as Roaring Kitty.
What’s Next for Meme Stocks?
We’ll have to see how widespread and endemic any new meme stock rally becomes. At least in the case of Avis and Bed Bath & Beyond, the companies had reported substantial news that, at least in part, has contributed to their new rallies.
Should other meme stocks such as AMC and BB catapult upwards by 20% or more in a single trading session, then it’s safe to assume we’re back in the craziness of a meme stock rally and investors should take steps to protect their portfolios from the chaos and carnage.
On the date of publication, Joel Baglole 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.