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How “Hot” Stock Market Ideas Can Burn Investors

The Meme Stock Index sees a 36% decline since January

by Bob Stokes
Updated: August 17, 2021

On July 30, this headline appeared on a well-known investment website:

It's Definitely Possible to Make a Fortune Off Meme Stocks

And, it's definitely true that many investors, especially newbies, have tried.

As you probably know, "meme" stocks may be loosely defined as stocks that become a white-hot focus of interest due to social media hype. The price of these shares can skyrocket within a short period of time. However, as you might imagine, these highly speculative issues can just as quickly turn southward.

Indeed, take a look at this chart from our recently published August Elliott Wave Financial Forecast, which said:

Memes

Legions of new investors continue to chase the latest hot ideas... Meme stocks are [a] mutant strain reflecting bullish enthusiasm despite price weakness. This chart shows a steady decline in an index of 35 meme stocks. Despite a decline of 36% since January, many headlines in July insist that the "Meme Stock Revolution" lives on.

This is from an August 10 CNBC article:

Short seller Jim Chanos said retail investors are not considering all the downside involved with speculative trading in so-called meme stocks.

Yet, let's pivot from here and state that all stock market trading is speculative, even with the so-called "blue chips." In other words, the main stock market indexes can significantly decline just like the meme stock index.

So, while "traditional" investors may largely steer clear of meme stocks, many of them may be unprepared for a possible trend turn in the Dow Industrials and the S&P 500 index.

Why will the majority likely be unprepared? Well, consider this quote from a July 18 Wall Street Journal article:

Throughout 2021, a range of surveys, fund-flow figures and options activity have shown investors big and small to be exceptionally bullish.

The best way to avoid getting caught flatfooted when an inevitable trend change occurs is to see what the Elliott wave model is revealing about the broad market's price pattern.

You can do so by following the link below.

4 Decades of Market Observation -- and Counting

Most people who plan to traverse treacherous terrain want an experienced guide.

The reason is obvious: A guide has "been there, done that" and can help you avoid danger.

The same applies to financial markets.

Our analysts have been serving subscribers since 1979 and offer financial insights that you will not find anywhere else.

Get our Elliott wave experts' latest outlook for U.S. stocks, bonds, gold, silver, the U.S. dollar, the U.S. economy and more by following the link below.

Central Banks: Big Change Ahead

At a recent press conference, the ECB President Lagarde said, "...we are not offering forward guidance of any kind." That's a huge change in central banks' modus operandi, and it has a lot to do with the strength of the U.S. dollar, says our Head of Global Research, Murray Gunn -- watch.

EXCLUSIVE

Trend Indicators: Is One Enough? Are Two Too Many?

You have a choice of hundreds of technical market indicators. While choosing the right one (or ones) may seem impossible, there IS a way to do it -- without overdoing it. Watch our Trader's Classroom instructor Jeffrey Kennedy walk you through charts of TWTR, LMT and CABO to show how he combines Elliott waves with RSI/Stochastic and Japanese Candlesticks for a nicely rounded market view.

Severe Bear Market: Will You Be Among the Prepared 1.5%?

Financial history shows that many investors hold onto stocks during an entire bear market. How does this relate to 2022? Here are some insights.