Why Newegg, AMC, and Sundial Stocks Dropped Today

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What happened

Meme stocks took investors on another wild ride on Friday — and for the most part, it’s looking like things will end badly. In early trading, newly inducted meme stock Newegg Commerce (NASDAQ:NEGG) shot up as high as 29% before turning tail and running down to its current 1.1% loss.

Suffering similarly (albeit without the big run-up before retreating) are more established momentum plays like AMC Entertainment (NYSE:AMC) and Sundial Growers (NASDAQ:SNDL), down 3.5% and 0.6%, respectively, as we enter the final hour of the trading day.

Image source: Getty Images.

So what

What’s keeping the lid on meme stocks today? The answer depends on which meme stock you’re asking about.

In the case of Newegg, investors appear to have simply got carried away by a couple of news items earlier in the week that might not actually have too big of an effect on the business — a Newegg sale on popular graphics processors for example, and an expansion of Newegg’s already existing “build-to-order” PC program. While certainly positive developments, even in combination it’s hard to argue that these news items made Newegg stock worth 250% more on Wednesday than it was selling for back on Friday — and in the absence of any other news to keep the momentum going, Newegg stock is succumbing to gravity’s pull today.

Similarly lacking in substantive news were both AMC and Sundial. The former had no news to report at all today. The latter announced only the results of a shareholder meeting in which it elected five directors to its board and reappointed KPMG as its auditor.

Of such ho-hum news are stock price rallies not made.

Now what

Perhaps worst of all for meme stock fans, on Thursday the market analysts at Goldman Sachs opined that, in the bank’s opinion, the popularity of meme stocks in general appears to be fading — or indeed, already has faded. Goldman forecasts that Q2 brokerage trading volumes will show as much as a 30% sequential decline in retail trading of meme stocks, reports TheFly.com.

Curiously, this decline in trading isn’t happening in response to any notable decline in short activity, however. To the contrary, the latest data from Yahoo! Finance show that there is still heavy short interest in both Sundial (about 14% of shares outstanding) and AMC as well (17%). (Newegg’s short interest still appears minimal at less than 1% — but if I were a betting man, I’d guess that after the stock’s amazing run this week, the shorts are gathering around that one as well.)  

But despite the high short interest, and the resulting potential for a short squeeze to drive these stocks higher, they aren’t in fact going higher. Goldman Sachs seems to think that implies that the meme stock traders may be tiring of losing money from trying to time the market and trade on momentum.

More traditional investors who invest for the long term and pay attention to valuation can only hope that Goldman is right about that.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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