Topline
In the latest sign a weeks-long trading frenzy could be reaching a boiling point, shares of Clover Health skyrocketed to a new record high Wednesday and then crashed into negative territory for the day as Reddit traders pile into a growing swath of so-called meme stocks.
Key Facts
Clover shares skyrocketed 26% at Wednesday's market open after surging 86% Tuesday, pushing the stock’s three-day gain to more than 200% before reversing to a loss of as much as 10% on the session by 10:30 a.m. EDT.
The stock’s increased volatility coincides with increasingly bearish bets against it, with short interest indicating that nearly half of shares available to trade are held by investors who can only make money if the stock’s price falls, according to financial data platform Ortex, far more than the short interest in the leading meme stocks AMC and GameStop.
The stock headlined the r/WallStreetBets board’s most popular tickers Wednesday, alongside fresh Reddit target Clean Energy Fuels, which was up 27%, and meme-stock staple BlackBerry, which was off 6%.
The board also featured formerly bankrupt Twinkie-maker Hostess Brands, which climbed to a four-year high Wednesday, and fast-food giant Wendy's, which led a Tuesday rally but is now sinking 10%.
As Reddit traders have shifted focus to new meme stocks, shares of AMC and GameStop have held on to staggering gains of 1,700% and 2,500% this year, respectively.
Key Background
Now in its third week, the latest wave of frenzied retail trading has confounded experts who are increasingly unsure how long it could last. On Monday, billionaire Thomas Peterffy, the founder and chair of Interactive Brokers, cautioned investors against shorting the crop of volatile stocks, saying prices could continue to hit “unimaginable highs” for an indeterminate amount of time before eventually crashing down to fundamental values. It took waning short interest to crash the meme-stock market in January, but this time around, short-sellers seem to only be doubling down on their bearish bets. “There is just too much liquidity in AMC and some other meme stocks that it makes it impossible for money managers and hedge funds to pass up this opportunity,” Oanda senior market analyst Edward Moya said in a Tuesday note.
What To Watch For
Moya says meme stocks could calm down by the end of next week if trading follows the pattern that took shape at the start of the year, when Reddit stock favorites ultimately crashed as much as 80% in just a few days. However, he also cautions that “this time could be different” if the broader stock market doesn't fall. On Wednesday, the S&P 500 is rising to record-high territory.
Tangent
Before their Reddit-fueled gains, Clover shares crashed nearly 60% from a late-December high amid a wave of intensifying regulatory scrutiny. In a February regulatory filing, the company disclosed that the Securities and Exchange Commission was investigating allegations made by short-seller Hindenburg Research, which had just published a report alleging the firm misled investors before its initial public offering in January. When the company announced its intent to go public, shareholder Chamath Palihapitiya told investors the business already had 200,000 “lives under contract” as part of a new program, but in a first-quarter earnings call last month, executives said they expected to have just half that number—or even less—enrolled by the end of the year. Clover denies any wrongdoing.
Surprising Fact
Amid the intensifying stock mania, some Reddit users have started to caution others about the high-risk trading. “This is gambling,” one user wrote on the board Wednesday morning, garnering nearly 1,000 up votes within two hours, while urging others to “know when to quit.”
Further Reading
Billionaire Clover Health CEO Vivek Garipalli's Expletive-Ridden Tirade (Forbes)
Clover Projects It Will Have Only Half The Medicare Members It Promised Investors Before IPO (Forbes)
'SPAC King' Regains Billionaire Status As Trading Frenzy Boosts Clover Health (Forbes)
Brokerage Billionaire Warns Against Shorting AMC, Meme Stocks: Prices Could Hit 'Unimaginable Highs' (Forbes)
