Jul 16, 2021 - Economy

"Very bad omen" for meme stocks as novice traders stop investing

Data: Google Trends; Chart: Axios Visuals
Data: Google Trends; Chart: Axios Visuals

Meme stocks are losing that meme stock energy.

Why it matters: A handful of stocks, including GameStop and AMC Entertainment, attracted huge amounts of interest earlier this year thanks to online communities like Reddit.

  • This sparked a boom in new retail stock trading accounts on platforms like Robinhood, where traders trade commission-free.
  • But in the past month, GameStop and AMC shares tumbled around 30% and 40%, respectively.

State of play: One factor that turns a stock into a meme stock is that it attracts the attention of new traders who are committed to trading with hoards of buyers.

  • These new traders tend to be novice traders, and they seek information like novices at anything else: they do Google searches for basic terms.
  • However, Google Trends data shows searches for basic terms like "investing" and "buy stocks" have fallen to levels not seen in over a year.

What they’re saying: DataTrek Research co-founder Nicholas Colas says this is a "very bad omen" for meme stocks.

  • "To our eyes, the data here says that the surge in US retail investor interest in investing is entirely over," Colas writes.
  • "Every craze needs new adherents (i.e., not just the same crowd) to keep it relevant, and the Google chart shows those are in increasingly short supply."

The bottom line: Crazes never last, though there will continue to be weird reasons stocks may move up or down sharply over short periods of time.

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