On Monday, Bed Bath & Beyond Inc. (BBBY) saw a 39% jump from its Friday close of $8.15 to an open of $11.40.
This leap wasn’t due to anything positive on BBBY’s front; instead, we saw a repeat of what happened in January 2021: a short squeeze.
According to a Monday Reuters article…
… retail investors flocked to the highly shorted stock of the home goods maker, likely piling pressure on those with bearish bets on it.
“We do believe there is currently a short squeeze playing out in BBBY,” said Evan Niu, analyst at Ortex, adding that 45% of the firm’s free float was shorted.
Short squeezes aren’t new, and they aren’t just a U.S. phenomenon. Just last week, Hong Kong’s AMTD Digital surged from $7.80 to $400 in a matter of days – that’s 5,028%!
But, as I’ve detailed before, jumping headfirst into “meme stocks” and internet-fueled short squeezes (like we saw last year) is for thrill-seekers only. Fad investing are like fad diets – they’re popular for a short while, but the payoff is usually poor, and the results aren’t long-lasting.
Today, let’s take a trip back to January 2021 – when the meme-stock craze first began.
Then, I’ll tell you what you should consider instead.
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The GameStop Frenzy Fizzles
Note: This article was originally published on Jan. 13, 2021.
Welcome to Reddit-land!
Thanks to this online stock-chat forum, numerous previously unloved stocks have been rocketing higher over the past few weeks.
Reddit has become a powerful, albeit narrowly focused, force in the stock market, and Reddit traders have sunk their teeth into heavily shorted names like GameStop Corp. (GME), AMC Entertainment Holdings Inc. (AMC), and BlackBerry Ltd. (BB) and created massive “short squeezes.”
In other words, the Reddit traders have been buying these stocks… then coaxing others to buy these stocks… then boasting about the thousands they’ve made buying these stocks… and then gloating about the millions that hedge funds and other professional short-sellers have lost by betting against these stocks.
Before this began, GameStop shares were trading hands below $20. But by Friday, Jan. 8, 2021, they were trading around $350!
And since nothing succeeds like success, the Reddit crowd has been scouting around for some fresh red meat.
Already, some folks are calling what we’ve seen over the past few weeks the “future of the market.”
I doubt it…
The Next Megatrend?
5G isn’t the only megatrend I’ve set my sights on for this year (and beyond). I just dropped my latest issue of Investment Report, which contains two brand-new recommendations in a sector I haven’t explored in quite some time. But we’re diving back in for good reason… and you’ll want to be on board as the trend continues to mature. Details here.
Cats and Dogs Unite
On Thursday morning, Robinhood Markets Inc. (HOOD), TD Ameritrade, and other platforms started restricting trading on GameStop and other Reddit faves. (Is that even legal? I suppose we’ll find out.)
That led U.S. Representative Alexandria Cortez (D-N.Y.) and Senator Ted Cruz (R-Texas) to find the one thing they agree on: Robinhood shouldn’t be doing that.
And here’s a headline, from Fox Business, that none of us ever expected to see: “Treasury Secretary Yellen ‘Monitoring’ GameStop Stock Situation.”
So, maybe these Reddit frenzies are already the past of the market.
But I doubt that, too.
While the Securities and Exchange Commission may toss some regulations in their way, the Reddit Army’s share-price manipulations are likely now a part of the stock market.
The inmates will occasionally get to run the asylum. It’s just something we’ll all have to consider when making trade decisions.
But for the most part, it’ll be a sideshow. The market will continue churning along… and Wall Street and smart investors will keep making money.
Now, I’m not here for a lecture about “fundamentals” or the “purpose of the stock market.” After all, the stock market left reality behind a long time ago.
These are smart kids, there are a lot of them, and they’re going to keep finding flaws in the market to exploit. Good for them!
If you want to join them — and you don’t risk more than you can afford to lose — have at it. However, treating the market like a casino just isn’t what we do here or in my other services.
After all, the Reddit Army could evaporate as quickly as they appeared. So, there is no real disciplined or academic way to trade off these frenzies.
If one of my trades gets caught up in the chaos, I’d be stupid to not suggest cashing in. But I will not recommend buying any stock as a play on Reddit chat.
Instead, I’ll keep using a global-macro approach to find and recommend stocks and other trades as long-term plays on huge trends like the global 5G deployment.
That story continues to gain traction…
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This 5G Play Is Set for a Comeback
5G isn’t simply the thing-that-comes-after-4G. It is a uniquely powerful investment opportunity that will deliver outsized gains for many years to come.
Trillions of investment dollars will flow toward and through 5G infrastructure over the next several years, no matter how well or poorly the global economy is faring.
Qualcomm estimates that 5G networks will generate a whopping $13.2 trillion in global sales activity by 2035. Typically, an industry measures its growth potential in the billions of dollars, not trillions.
Perhaps that’s why telecommunication companies are placing astoundingly huge bets on 5G’s future profitability. They’re doing so through their bids in federally run 5G airwaves auctions.
In January 2021, U.S. wireless carriers like Verizon Communications Inc. (VZ) and pay-tv providers like Comcast Corp. (CMCSA) bid more than $80 billion for access to 5G airwaves in auctions run by the Federal Communications Commission (FCC). That’s far more than analysts’ estimates of $47 billion… and it smashes the old record of $45 billion in 2015.
Telcos are spending all those billions now because they believe in those forecast trillions in revenue in the years to come.
Also in January, China upped the ante on 5G growth by unveiling ambitious new plans to nearly double its 5G wireless capacity in 2021.
Clearly, we’re on the cusp of a 5G revolution… and this revolution will create enormous opportunities for select companies and their shareholders.
No company or country can afford to ignore 5G or to lag behind constructing and utilizing it. This new network will quickly become the essential oxygen of the coming tech-based economy… and the dollars involved will be astronomical.