Market Strategists Explain the Three Characteristics of meme Stocks

As the stock market finishes the first quarter strong, "zombie stocks" make a comeback.

While the meme frenzy hasn't yet reached the intensity of 2021, when GameStop (GME) and AMC (AMC) stock prices will soar to new heights, the meme phenomenon is still centered on a handful of standouts.

For example, interest in GameStop (GME) has risen in recent trading, in part due to new entrants to the market through IPOs, such as Reddit (RDDT) and Trump Media & Technology Group Inc (DJT).

Reddit's stock has soared more than 90% in its first three days of trading to more than $65 per share, well above its $34 initial public offering price. However, the social networking platform's stock price has continued to fluctuate, falling to around $49 by Thursday's close.

And after rising as much as 50% on its first day of trading, Trump Media's shares fell later in the week, closing at about $62 per share on Thursday.

"It's been all momentum since November, but the leading momentum stocks have generally been the ones that have been delivering on their promises," said Interactive Brokers Chief Matrix Strategist Steve Sosnick, talking about the Big Rock rally on the Yahoo! Finance live show (above). It's been momentum since November, but the leading momentum stocks are generally the ones that have been delivering on their promise." We're starting to see people chasing stocks simply because they're going up, not because of any underlying flour. To me, this suggests a bubble in the market."

Investors' interest in meme stocks may be directly related to the FOMO mentality, which is the fear of missing out, Bryan Jacobson of Annex Wealth Management told Yahoo Finance Live.

"They're trying to find the next hot spot," Jacobson says, "and they're just starting to chase it, and they're getting into it." This can obviously work out well, but it can also end in tears, especially if you didn't get into these stocks early enough.

3 Characteristics of a meme stock

But what exactly are meme stocks?

Sosny resonance explains that there are three main criteria for assessing whether a stock belongs to this category.

Sosny resonance that the first mark of meme stock was "quasi-religious fervor."

"It's one thing to be passionate about a stock, it's quite another to be so fanatical about it," says Sosni resonance." Think of the real fans of AMC and GameStop in the early days. Of course, the same can be said of former Artefact supporters, who I think helped make DJT's stock stronger.

The second criterion is that there is no flour. Traditionally, investors look for opportunities that provide financial returns over a long period of time, especially opportunities to beat market performance over the same period.

On the other hand, many meme stock investors consider a much shorter time horizon, as they want to quickly translate their speculative assets in the event of a price spike and thus reap the benefits.

If you believe in a stock, if you have a non-analytical view of that stock, then you can ignore the fundamentals," adds Sosny resonance, noting that stocks traded on momentum can be expensive "by any common measure," he says. It can be expensive.

Finally, Sosni resonance said that investors should be concerned about the high level of shortness.

Short interest is when investors are betting that the stock price will go down instead of up. In the case of Dow Jones Industrial stocks, there is a precedent for high short interest, but it is still at a high of 11%. The average short interest rate for publicly traded companies usually ranges from 3% to 4%, but can go as high as 40% as investors become more pessimistic.

Essentially, meme stocks, as defined by Sosni resonance, capitalize on the intense enthusiasm of retail investors who are willing to take on more risk and ignore some of the more traditional investment strategies in order to achieve a higher return, especially in the short term.

Stephen Sikes, Public's chief operating officer, basically agrees, but he thinks it's not that simple. According to Sikes, meme stocks appeal to a wide range of investors with different goals and strategies, not just those looking for instantaneous returns on meme stock speculation.

"We have some investors who are long-term buy-and-hold investors and we have some investors who are traders who are trying to take advantage of market volatility and momentum," says Sykes." They see opportunity here, not the quasi-religious fervor you might have seen in previous eras.

As for why meme stock is making a comeback, Sykes told Yahoo Finance that investor familiarity with the company's products or brands and increased market volatility are likely to be among the reasons.

Asked where investors might find the next target of the "meme mania," Jacobson noted that the market might turn to small-crop stocks and underperforming sectors such as industrials, manufacturing and utilities.

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