Riding the Roaring Kitty roller coaster: Why GameStop and AMC meme madness is an 'outlier event'

By James Rogers

'It's not a real economic event for the average investor,' says behavioral-finance expert Victor Ricciardi

Shares of GameStop Corp. and AMC Entertainment Holdings Inc. soared this week after trader Keith Gill, also known as "Roaring Kitty," made his eye-catching return to social media after a three-year hiatus.

Gill was an influential figure in the meme-stock frenzy in 2021, and his flurry of posts on X - known as Twitter when Roaring Kitty burst into the stock-market spotlight - thrust GameStop (GME) and AMC (AMC) to center stage once again.

Other heavily shorted stocks - including SunPower Corp. (SPWR), Maxeon Solar Technologies Ltd. (MAXN), MicroCloud Hologram Inc. (HOLO), Children's Place Inc. (PLCE), Beyond Meat Inc. (BYND), Spirit Airlines Inc. (SAVE) and Plug Power Inc. (PLUG) - were also swept up in the latest meme-stock wave.

Data: The stocks with the heaviest short interest

"It felt as though the market briefly took a trip back to 2021 this week after GameStop shares traded up as high as 119% on Monday morning, based on a single tweet posted by Keith Gill (a.k.a. Roaring Kitty), the infamous central figure of the 2021 meme-stock frenzy," CIBC Capital Markets analyst Stephanie Price wrote in a note published Thursday. "Rising interest rates had cooled the meme-stock craze over the last two years, and until now, Mr. Gill's Twitter account had been silent since his 2021 testimony to Congress."

"The moves this week have left many wondering if Roaring Kitty's return to social media is a signal that retail traders are eyeing struggling companies and heavily shorted stocks once again," she added.

Related: These behavioral trends drove the GameStop and AMC meme-stock rally

Victor Ricciardi, a visiting finance professor at Ursinus College and co-author of the book "Advanced Introduction to Behavioral Finance," told MarketWatch that he was fascinated by this week's events, if not surprised. "Human behavior has a tendency to repeat itself," he said.

But Ricciardi added that the scope of this week's meme-stock rally should not be overestimated. "It's not a real economic event for the average investor - that's why I would hate to call it a bubble," he explained. "It's not a bubble affecting the overall market; it's more of an overreaction or an outlier event that's concentrated on a small group of investors."

Related: AMC meme-stock rally 'is just pure hype,' analyst says

After surging on Monday and Tuesday, shares of GameStop pared back their gains beginning Wednesday, before ending Thursday's session down 30% and falling further by 19.7% on Friday. GameStop shares are down 54.4% over the last three trading sessions, registering their worst three-day stretch since the period ending Feb. 4, 2021, when they fell 76.22%, Dow Jones Market Data show.

Shares of AMC have followed a similar trajectory this week. After skyrocketing on Monday and Tuesday, the stock tumbled on Wednesday and Thursday and ended Friday's session down 5.2%.

A number of experts have weighed in on the meme-stock rally this week. Dan Raju, chief executive of cloud-based financial-services provider Tradier, deemed GameStop's run-up as a "short-term baseless frenzy" on Monday, while Cory Mitchell, an analyst at investing-information website Trading.biz, described the AMC trade as "just pure hype" on Wednesday. The rally also sparked memories of the "gamification" of trading during the meme-stock heyday of 2021.

Related: GameStop's meme-stock rally is a 'short-term baseless frenzy,' brokerage CEO says

There was a twist in the week's events Friday morning when GameStop delivered a quarterly profit and sales warning while filing to issue more shares. Analyst firm Wedbush Securities viewed the share issuance positively and raised its GameStop price target on Friday to $7, from $5.60.

"When life gives you lemons, file a shelf," wrote Wedbush analyst Michael Pachter in a note. "GameStop is capitalizing on a recent spike in share price by prudently issuing shares at a premium, providing itself a greater level of reserves while it struggles to refocus its business and reverse continuing operating losses."

-James Rogers

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05-18-24 0632ET

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