Meme Stocks, Market Momentum, and SEC Messages

The Reddit Raiders have revolted! Robinhood (HOOD) has been exceeding expectations, but it’s not the crew at #WallStreetBets that’s making it happen. With cries of “Jan 28 #neverforget,” and statements like, “I am positively telling anyone I know not to buy $HOOD,” the raiders are at war with their most utilized trading platform. Is that a smart move?

Like it or not, Robinhood is now a meme stock. The conversation is hot and heavy, and it doesn’t loom positive for the HOOD, but it’s happening. Yahoo Finance published an article on the subject this past Monday and the stock has already dropped 16%. Will the downtrend gather momentum? I did tell you share prices would be at $20 by the time the dust settles.

HOOD opened at $49.76 on Thursday morning. It hit $70.47 on August 4th, less than a week after opening at what most experts felt was an overpriced $38 per share. If you’re surprised, you haven’t been paying attention. The value of Robinhood was speculative. Anyone who did the actual math on it knew this was coming. Watch what happens next week.

Memers Move Prices, but Don’t Control Market Momentum

When you push a boulder off a cliff, you’re merely starting the process. Gravity takes care of the rest. With all the excitement around GameStop (GME) and AMC Entertainment (AMC), investors seem to have forgotten that. Both stocks saw huge spikes when the kids were playing around with them. They’re now coming back to earth as the adults take over.

Don’t get me wrong. I’m in favor of market democratization and love the fact that anyone can become an investor these days. I trade on Robinhood and play the OTC market on E*TRADE. I also have a financial advisor who manages a diversified portfolio for me that includes retirement savings and annuities. You can’t get those on Robinhood.

Like it or not, the Reddit Raiders don’t control the market. They disrupt it. As a long-time financial professional, I’m disgusted by short squeezes and price compressions initiated by a group of gamers who should be playing Minecraft. If you’re in that group, here’s a fact of life for you: Hedge fund managers are still winning. They always will.

SEC is Investigating GameStop Trading

I’ve long suspected the presence of a financial professional in the mix during the “brilliant” move by #WallStreetBets to drive up prices on GameStop. Apparently, the SEC feels the same way. A recent disclosure by management at GameStop revealed that the SEC has requested documents and information on trading activity during that time.

Add this to Gary Gensler’s opposition to payment for order flow (PFOF) and the SEC’s stated intent to regulate the crypto market. Robinhood, with a share price that’s tumbling, could be in big trouble. If they go down, you can thank the memers on Reddit. Not only are they biting the hand that feeds them. They’re putting the whole body into the grave.

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About the Author

Meme Stocks, Market Momentum, and SEC Messages

Kevin Flynn

Kevin D. Flynn is InvestorsPrism's Editor-Financial Markets. A former financial professional and founder of AdvisorScale Financial Writing, Kevin lives in Leominster, Massachusetts with his wife Evelyn, two cats, and nine wonderful grandchildren.