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