Market Health

Markets Are Sick After Mob Mentality Pushes GameStop Shares Higher

“Be afraid.”

That’s what my gut was screaming on Wednesday morning.

When the market divorces itself from reality, you have to sit up and pay attention. Alarm bells should be going off, even if wild euphoria begins in one pocket of the market.

Before I go on, let’s take a moment to refresh on the investor cycle of emotions

The Cycle of Markets Emojis

When excitement mutates into euphoria, we face the greatest risk. This is where we have to tread carefully and be the most cautious.

Right now, there are some very unnatural things taking place in the market. And these might be the first signs of a systemic sickness.

The Mob’s Revenge

On Wednesday morning, GameStop (NYSE: GME) shares blasted past $300. The epic gamma short squeeze was still in play.

Last month, shares of GameStop rocketed more than 1,900%!

Gamestop Performance

In no rational universe should the video game reseller’s shares ever be that high. And the company should never be valued at more than $20 billion.

It was insanity.

That same morning, AMC Entertainment (NYSE: AMC) shares were up 300% to more than $20.

The movie theater operator – recently on the verge of bankruptcy – hasn’t seen its shares that high since 2018.

The message boards across the internet for these two trades are filled with a mix of euphoria and hate. There are giddy, sky-high visions about how these two companies are the future of entertainment and gaming, swirled together with a bitterness and a blood-thirsty desire for revenge, aimed at hurting Wall Street as much as possible.

It’s mob rule.

Rational thought – even basic valuation metrics – has been tossed out the window. And the driving force borders on collusion and manipulation.

The mantra is if people keep buying – and like in a pyramid scheme, rope in their friends, family and co-workers to buy – they’ll send shares higher.

Yes. Demand for shares leads to an increase in price. That’s the basic mechanics of the market.

And yes. This is a short squeeze – one for the record books possibly.

But then we have the delusions: When they’re done, when they’ve all decided enough profits have been made – that everyone has had a chance to score big – they’ll all sell at once and exit with piles of cash.

It’s a utopian view of investing…

And nothing could be more idiotic.

Because in the end, they are the ones who will get hurt. They won’t hurt the ones they’re specifically targeting. They’ll hurt their family and friends who were suckered into this massive scheme.

Now, I have no doubt that the leaders behind this attack will walk away with heavy pockets. They will be laughing all the way to the bank as their “meme army” pushes shares higher and ropes in more investors. The followers – the blind disciples – will benefit to varying degrees.

But that’s not the only thing to be afraid of.

AAGH!

The market’s detachment from reality doesn’t end with GameStop and AMC.

Shares of America Great Health (OTC: AAGH) have exploded more than 1,100% this year!

That includes the 118% gain from last Tuesday.

The packaged-foods company’s market cap approached $6 billion at one point.

That must’ve been great for America Great Health’s sole full-time employee.

You read that right… It has ONE full-time employee.

So what does this wonderful company do? What makes it so great?

No one knows.

The company’s website doesn’t even work. And in its description, the company plainly says it has “no significant operations.”

But the message boards for America Great Health are filled with laments and questions of whether traders missed the boat: Should they jump in or wait for a dip? And as a testament to this market, the replies were all to buy GameStop.

The markets are slightly feverish at the moment. There is an illness working through the system. It’s like toxoplasma gondii in mice.

Investors have become fearless as they march their friends and families to their potential dooms. And that should put rational investors on edge at the moment.

As the old adage goes, “When everyone is greedy, be fearful.” Right now, there are several pockets in the market that are consumed by greed. And that always ends in tears.

Here’s to high returns,

Matthew