Tiny Bubbles Abound

By:

Chief Strategist at Interactive Brokers

Yes! I’m finally able to put my years of watching Hawaii Five-O reruns to use in a market context.  The signature song by the late Hawaiian singer Don Ho, offers an apt soundtrack for the latest rerun of the market sitcom that is “Meme Stocks”.  Tiny Bubbles abound once again.

Last week we noted the lunacy that accompanied AMTD Digital (HKD).  We analogized the return of speculation in HKD and other meme stocks to the appearance of long-dormant mushrooms when rains follow a dry spell.  They appear seemingly out of nowhere, flourish, sometimes spectacularly, and fade out after another period of dry, sunny days.

To recap, HKD came public[i] at $7.80 on July 15th, opened for trading at $13, and then spent most of the following four days in the low $20’s.  Not bad for a 16 million share offering in a company with 2021 revenues of US$25.2 million and profits of USD$22.1 million.

Yet the stock closed its first week at $68.  That was a stellar move, but only a harbinger of what was to come.  The stock closed next week at $400.25 and the week after that (last week) at $721.23.  Yet that only tells a small piece of the story.  Its closing high of $1,679 was a week ago, on a day when the stock touched $2,555.30.  It jumped above $2,000 briefly on Wednesday, but that began a steady decline.  As I write this, HKD’s last sale is $276 – a spectacular gain for those who were early entrants, but a disaster for later ones.

The HKD supernova acted as a clarion call to the speculators who love meme stock excitement.  It got the band back together, so to speak.  As a result, we’ve seen double-digit gains in GameStop (GME), a near doubling in Bed, Bath and Beyond (BBBY), and a sizeable bounce in AMC.  Only AMC, which finalized plans for a spinoff, had anything resembling fundamental news that might justify a sizeable rally.

As a result, financial media abounds this morning with stories about another return of meme stocks.  I don’t blame them.  People are fascinated with the meme stock phenomenon (including me), and those who publish financial stories know that meme stock stories make wonderful clickbait (including me). 

But as with my lawn’s fungi, sunshine is not a friend to meme stocks.  The meme stock page on my IBKR TWS (yes, I use one) is all red, and some of the losses are in double-digit percentages.  We noted during a previous meme stock bloom that the half-life of these flourishes seems to be shrinking.  If you participate in these period rallies and trade them profitably, congratulations.  If you notice the eruptions only after they are in full flourish, please be careful. 

AMTD Data

Source: HKD SEC 424b4 filing

[i] Never mind that the lead underwriter was AMTD Global Markets, an affiliated operating unit in the AMTD unit under one of the entities in this not-at-all-confusing corporate umbrella

Disclosure: Interactive Brokers

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