Meme Stocks Light Up a Lackluster Wall Street

Meme stocks recorded their biggest one-day gain in five months

After several months on the sidelines, retail traders returned to their brokerage apps, driving up double-digit gains in meme-stock market darlings GameStop Corp. (GME) and AMC Entertainment Holdings, Inc. (AMC), among others.

Key Takeaways

  • Meme stocks posted double-digit gains Tuesday afternoon, catching many traders off guard.
  • GameStop shares reclaimed the 50-day simple moving average (SMA) in a move sure to attract further attention from speculative retail traders.
  • AMC shares also closed above the closely watched 50-day SMA, continuing their push higher from a multi-month uptrend line.

What's more, the afternoon surge in a group of stocks made famous last January by Reddit trading group Wall Street Bets came out of nowhere. One possible explanation may relate to the Food and Drug Administration's (FDA) recent full approval of drugmaker Pfizer Inc.'s (PFE) COVID vaccine. More confidence in the jab means more people getting inoculated, giving consumers the courage to visit AMC theatres for a screening of the latest blockbuster movie. Similarly, gamers are more likely to return to their local brick-and-mortar GameStop store knowing that there's less chance of contracting the virus.

Let's take a closer look at each stock and use technical analysis to put together possible trading plays.

GameStop Corp. (GME)

The once slow-moving video game retailer GameStop shot to prominence earlier this year when its stock rose more than twentyfold in less than 15 trading sessions as retail investors banded together to squeeze out institutions and hedge funds that had large short positions. Tuesday's rally saw GameStop stock jump 27.53%, its largest one-day gain in five months. Trading volume also backed the buying, with over 14 million shares changing hands, more than ten times the average amount traded over the past five sessions. Through yesterday's close, the stock has gained over 1,000% since the start of the year but returned just 0.41% over the past three months.

GameStop shares reclaimed the 50-day simple moving average (SMA) Tuesday in a move sure to attract further attention from retail traders looking to play the short-term momentum. Those who enter here should think about booking profits on a retest of the late-January peak at $483. Manage downside risk by placing a stop-loss order beneath yesterday's low at $165.15 and raising it to breakeven if the price climbs above intermediate resistance at $300.

Chart depicting the share price of GameStop Corp. (GME)

The breakeven point for a trade or investment is determined by comparing the market price of an asset to the original cost; the breakeven point is reached when the two prices are equal.

AMC Entertainment Holdings, Inc. (AMC)

Movie theater operator AMC Entertainment saw its stock price rocket from a little over $2 to more than $20 in a matter of days during the same period as the GameStop rally. Frenzied buying returned in late May, propelling the shares nearly 500% in just seven trading days. After taking the foot off the accelerator for several months, the so-called Robinhood retail army returned with a vengeance, driving the theater chain's stock price up 20.34% on the heaviest trading volume since mid-June. Moreover, AMC call options with a $40 and $50 strike price were among Tuesday's most traded equity derivatives, indicating bullish bets for further upside. As of Aug. 25, 2021, AMC has returned almost 2,000% year to date, making it one of this year's best-performing stocks.

AMC shares also closed above the closely watched 50-day SMA Tuesday, continuing their push higher from a multi-month uptrend line. Active traders who position for follow-through buying should consider setting a take-profit order around $71.70—an area on the chart where the price may find selling pressure near its recent record high. Protect against a sudden loss of momentum with a stop placed under this week's low at $34.41.

Chart depicting the share price of AMC Entertainment Holdings, Inc. (AMC)

A record high is the highest historical price level reached by a security, commodity, or index during trading.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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