Meme stocks are capping off a wild week with even more volatile moves.
AMC, the current posterchild for the group, swung from losses to gains by midday Friday as investors digest the prospect of more share issuance. That stock is up more than 100% this week and has risen close to 2,700% since a January bottom.
Matt Maley, chief market strategist at Miller Tabak, warns of an ugly ending to the AMC mania.
“These moves are so dramatic and, to be honest with you, I just think it’s a sign of froth in the marketplace. We’ve seen this huge amount of liquidity that the Federal Reserve has provided over the last year or so, and they’ve been telling us more recently that they’re going to taper back on that,” Maley told CNBC’s “Trading Nation” on Thursday.
“As that liquidity becomes a little less plentiful, some of these stocks that are trading far beyond any of their fundamentals, I think it’s going to be really rough,” he said.
A look at AMC’s charts illustrate just how parabolic a move it has been, Maley said.
“You see its RSI chart, it’s gotten above 90 or into the high 90s twice this year. Most companies that doesn’t happen two times in a decade. So this is I think a speculative fervor and shows how speculative things are,” he said.
A stock’s relative strength indicator, or RSI, measures how overbought or oversold an asset has become. When it trades above 70, it typically suggests a stock has become overbought and could be due for a pullback.
AMC is “not so widely involved in the marketplace that it’ll cause a serious crash but it will cause a pullback on the market and that’ll be good and healthy because what’s going on right now is simply just not healthy in my opinion,” Maley said.
Delano Saporu, founder of New Street Advisors, sees these moves as less of a sign of trouble and more a sign of the times.
“We thought that this was over [earlier this year] and really it’s not as far as the crowdsourcing ideas from what you would call retail traders or reddit traders,” Saporu said during the same segment. “As a spectator it’s really interesting to watch and I think this is not going away, you’re going to see more of this crowdsourcing of ideas.”
While he would steer clear of AMC, there is one meme stock he sees as worth a second look.
“If you’re looking at the whole meme space, there’s some other areas and names that I like. I think that there’s some plays in the EV space. So, if you look at a stock like Nio, that’s one that hasn’t really recovered the highs, trading at about $66 a share earlier this year, so that’s one I really like and I’m watching. I think there’s a lot of tail winds that would benefit a company like Nio,” he said.
Chinese electric vehicle maker Nio has risen 9% this week. It remains 37% off a January peak.
Disclosure: New Street Advisors holds NIO.
