Source: Barron's
Author: Paul R Lamonica

With Smith's song “Dream On” (Dream On), investors in influencer stocks can continue to dream until their dreams are shattered.

$GameStop (GME.US)$ It closed down 19.73% to close at $22.21 on May 17th.$AMC Entertainment (AMC.US)$It fell 5.17% to $4.4.

This fervor seems to be spreading, and it is also for$BlackBerry (BB.US)$,$Koss Corp (KOSS.US)$,$SunPower (SPWR.US)$Other popular companies are fueling the trend, and two other 2021 influencer stock darlings,$Virgin Galactic (SPCE.US)$und $Beyond Meat (BYND.US)$Recently, stock prices have also risen sharply. The underlying business of these companies hasn't changed much. Instead, the return of influencer stock guru “Roaring Kitty” (Roaring Kitty), whose real name is Keith Gill (Keith Gill), appears to be triggering a rebound in the entire influencer stock world.

So why, and why are these companies enjoying the resurgence of influencer stocks?

It's still unclear what is driving these actions. When asked by Barron's about the trading of influencer stocks and options, the NYSE did not comment. The reporter was unable to immediately contact NASDAQ, the Chicago Board Options Exchange Global Market, and the US Securities and Exchange Commission to ask them to answer questions about any influencer stock price fluctuations.

But there are five things that seem to be fueling the recent frenzy:

• “Empty” is back

In short, the reason for the stock market's surge appears to be the same as in 2021: investors betting on falling stock prices and shorting stocks are busy making up for losses.

The purpose of short sellers is to make money from stocks by borrowing and selling them. If the share price falls, they can buy it back at a lower price and profit from the trade. However, this strategy may be counterproductive. If shorted stocks rise due to large purchases from others, short sellers will be “squeezed”: they are forced to buy before larger losses accumulate, which in turn causes the price to rise further.

This appears to be happening at AMC and GameStop, as well as other influencer stocks, including the newly listed Trump Media Technology Group (DJT). Trump's Media Tech stock price has only risen slightly in the past two days, but it has more than doubled since mid-April.

GameStop and AMC are both heavily shorted stocks. Nearly a quarter of GameStop's 64.5 million shares on the market have recently been shorted, according to S3 Partners. According to S3 data, short sales increased 3.3 million shares this year, accounting for 5% of the total short sales volume.

Until recently, the momentum of short selling has been driving share price growth: GameStop's short sales volume rose 47% in the first four months of this year, according to S3 data. S3 said that GameStop bears lost $838 million on Monday and had lost another $536 million as of noon on Tuesday. Meanwhile, AMC bears lost $127 million on Monday and nearly $70 million on Tuesday.

• The momentum of change

In the last influencer stock frenzy, GameStop and AMC had relatively small trading volumes and few tradable shares. Since then, however, both companies have issued shares, adding publicly traded “tradable shares” to make them more liquid.

In theory, this could lower the cost of shorting these stocks. If more stock supply is shorted, borrowing costs should fall, thereby attracting more traders to short and creating greater squeezing potential.

On the other hand, the more stocks you can invest in, the less likely they will be shorted due to scarcity. At the peak of GameStop's rebound in 2021, more than 100% of the shares were sold short, indicating that some investors have borrowed these stocks more than once to short.

Some analysts believe that as stock market liquidity increases, it will be more difficult to continue tightening monetary roots. Influencer influencers like “Roaring Kitty” can still change the situation, but this won't last indefinitely.

“Can they go higher? Of course, but this time the task will be more difficult,” Nick Battista (Nick Battista), head of market intelligence at the trader streaming network Tastylive, said in a report. “Short-term virality can affect the market, but we're in a different situation right now.”

• Contagious effects

Not all influencer stocks are targeted by shorterers. For example, interest in shorting Blackberry and Gauss is relatively low, at less than 7% and less than 1%, respectively.

As a result, investors may just follow the 2021 script and flock back to the names of some famous influencer stocks of that era.

“Kids, the influencer stock boom is back!” Matthew Tuttle (Matthew Tuttle), chief investment officer of Tuttle Capital Management (Tuttle Capital Management), said in an email to “Barron's.” “The people who trade these things haven't changed; they've just gained more connections and more skills. The return of “Barking Kittens” is just an excuse to make things better than normal.”

“Compared to institutions, retail investors are generally at a disadvantage when it comes to acquiring shares, so I like things that break the balance,” Tuttle added.

• A boost to options trading

Increased demand for options may also stimulate a surge in influencer stock trading. Options traders seem to expect GameStop to take some action.

Interactive Brokers chief strategist Steve Sosnick (Steve Sosnick) said in a report: “It makes perfect sense for traders involved in these influencer stocks.” Sosnick indicated that the trading volume of GameStop options has “increased significantly” compared to recent trading days and is interested in call options due to expire this Friday. “Since the end of last month, some things have been brewing and are continuing,” he added.

Sosnick said in another report on Tuesday that GameStop was the 3rd most actively traded stock by InteractiveBrokers on Monday, and AMC was 17th. He noted that in addition to buying shares, GameStop also has options-related activities.

“Although stocks showed net buying interest, we also saw net selling interest. This may indicate that ready-to-buy or other risk control strategies are not just for speculation,” he said.

• Sometimes fundamentals also come into play

There are valid reasons why some stocks are soaring in price. hydrogen fuel company $Plug Power (PLUG.US)$ Another company that has been trending for shorting since the beginning of 2021. The company announced on Tuesday that it has received a $1.66 billion loan from the Department of Energy. As part of President Biden's green energy plan, the company's stock price has recently risen by nearly 20%.

Plug Power seems to be being influenced by real news that is happening, which should help keep its business alive. But for GameStop and other stocks that aren't rising for fundamental reasons, the situation is different.

Editor/Somer