What's new about this meme stock rally? Wall Street is in on it.

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00:00 Speaker A

Meme stock mania returned to markets last week with heavily shorted stocks like OpenDoor, Krispy Kreme, and Coles rocketing higher. This comes as US short interest overall rose by $79 billion over the last 30 days, hitting 1.5 trillion according to research from our next guest. Here to discuss what’s driving this momentum in the market is Igor Dusaniwski, S3 Partners head of predictive analytics. It is great to see you, Igor. How are you?

00:38 Igor Dusaniwski

I’m fine. Great to be here.

00:42 Speaker A

So we always come to you at moments like this to try and figure out what is sort of going on under the surface in the market here. And this sort of new crop of meme stocks, right? What have we seen in terms of short interest in these companies?

01:03 Igor Dusaniwski

Well, we’ve seen short interest actually increase even as stock prices have gone up in these meme names. Uh, this is uh, you know, not unusual. You’ve got people on the long side and the short side. We’ve actually started looking at the long side of the market a lot, and uh, it’s not a one-sided deal where, you know, the meme stocks are going against just the short positions. Uh, there are hedge funds that are actually trading long along with the uh, the Reddit guys and uh, and riding the wave as well.

01:48 Speaker A

Yeah, so that’s been interesting. And I guess another, you know, we we’ve been trying to sort of discuss the differences between this latest run versus meme stock, you know, when it first came up in sort of 2021. And I guess that’s one of the one of the changes is that the professionals have sort of caught on, right?

02:20 Igor Dusaniwski

Yeah. Yeah, I mean, you you never have a good opportunity go, go past you. They they’re really looking at whatever is a momentum play. So if they’re seeing the retail side pushing stock prices up, uh, a lot of them are shorting because they’re seeing stocks that are overpriced, but a lot of them are are jumping on and saying, hey, I’m going to go along with these uh, retail guys and go long and try to make some money on the upside. The big difference is that these institutional long traders are really good at getting in and out of positions. Uh, and sometimes retail guys left holding the bag because they’re the ones that are holding on for longer than they should be.

03:34 Speaker A

Right, which is something that we saw happen the last time. Um, potential new sort of next wave meme stocks, short of, you know, scrolling Reddit or some of these message boards, the characteristics that some of them seem to share is they sort of have name recognition, in some cases, maybe even sort of millennial nostalgia factor, and the high short interest. Are there any names that we haven’t seen get memed yet that might fall into that category?

04:13 Igor Dusaniwski

It’s really tough to call what’s what’s going to be on the Reddit boards. Uh, but there are some names that kind of fit the mold. We’re looking for again is is high shoulder exposure of float, a name that’s relatively familiar. Uh, some things that, you know, kind of we would know are some of the Cracker Barrel, Tootsie Roll, uh, Hertz, uh, Whirlpool. These are all names that have high short interest, and there’s a lot of uh, battleground uh, kind of uh, necessitous names where there’s long holders and short holders. But you never know. I mean, these might be some of the next names that uh, get on people’s radars.

05:08 Speaker A

Yeah, and some of them have have sort of cropped up on some of these um, meme stock lists before, like a Tootsie Roll, for example. Um, so when you talk about battleground stocks, you know, when you have um, the long and short holdings here, what tends to happen in those cases? And and what are what’s coming up on your screens for those?

05:48 Igor Dusaniwski

This is a really interesting development that we’ve kind of just uh, jumped into. Uh, we’re seeing hedge funds, active investors, uh, not the passive guys that are, you know, the ETF guys, the index uh, uh, guys that are just long and hold long forever. We’re seeing active investors, the hedge funds going long and short the same names. So what you’ve got is dry powder on both sides of the market. You got a ton of guys long, ton of guys shorts. If the stock price goes up or down, you’ve got volatility in this name where you got the price just shooting up because one side of the other pitchlates, and you’ve got a excess of return on one side or the other. It’s really interesting because these names are uh, the names that people should be looking at.

07:11 Speaker A

Yeah, it’s interesting stuff. And so the names that we’re talking about in this case, you’ve got something like a Fubo on the small cap side, which has been sort of memed in the past. AMC, obviously that too. You mentioned Cracker Barrel, Kohl’s already, Wolf Speed. Um, so what tends to happen, or what has tended to happen in the past when you have these these stocks? What does the price action look like?

07:51 Igor Dusaniwski

The action is actually, so if we see a trend higher, the shorts are getting, you know, getting smacked around a little bit. So they’ll end up buying the cover, and the longs get longer. So what you got is, you know, stock price that might be going, you know, relatively flat or slightly up, gets a shot up really quick because you’ve got this action on both sides. You know, equal, you know, you’ve got the shorts covering in the buys, and the long guys buying. Um, you’ve just got an accelerated price move in a lot of these names. So it’s something that if you’re managing a portfolio, or you’re even, you know, retail investor, you should know that that these names are that that scary sometimes where if the market goes up, you you’re going to do really, really good, but if the market goes down, you’re going to get crushed really fast.

09:01 Speaker A

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