Charting the rise of meme stocks

Yahoo Finance's Jared Blikre discusses the rise of meme stocks and examines the charts of some of the most popular trades.

Video transcript

TREY COLLINS: What is up, everybody? I'm With Trey's Trades. We freakin' talk fast. And don't skip class. [INAUDIBLE] not a financial advisor or expert. So take what I say with a grain of salt. Let's get into the video. Let's just talk about what's going on here. So I want to give you a little bit of a update on the technical analysis here. But mostly I want to focus on short interest inputs and how this whole sort of equation can work. Because I think this is something that's not really considered in terms of what can be considered short interest in any given stock.

So I want to talk to you about how puts actually affect the market. So let's just talk here about how this would end up working. First off, short interest on aims here [INAUDIBLE] about 14.36%, 73 million shares or so, has stayed about the same, floating back and forth between 14% and 15%. And we're going to have to wait until probably tomorrow to see any sort of return shares that could have come in in the last two days. Because you did see a pretty decent push, not yesterday but two days ago. So maybe it is actually today.

But if there was any sort of shares that were returned on that push two days ago, they'll show up here today. So you'll be able to see that and just check up on [INAUDIBLE], you'll know the whole picture. But most importantly, that I want to talk about is this overall sort of put hedging that can take place. So gamma squeezing can take place on both ends of things, most typically on the call option side because there's infinite upside for a stock. Puts though, when you gamma squeeze puts, the only amount that you can make is if it drops down to zero. There's limited returns in terms of a put.

- That was Trey Collins of Trey's Trades, just a little taste of what's out there right now. We were talking at the top of the show about how it used to be if you wanted information in this market, there was only a few places you could get it from. Now you have a lot of YouTube channels like Trey's, a lot, that cover all kinds of different aspects of the market. Now his happens to be quite popular. He's got, what, something like 400,000 subscribers or something?

- As many of us.

- Yeah. So you there is this whole upsurge, I don't know what else to call it.

BRIAN SOZZI: Miles, I am reminded we've talked about this repeatedly throughout this year. To traders like that and folks like that, fundamentals don't matter. They're looking at charts, they're trading momentum.

- I mean, some of them do. Some of them talk fundamentals. It's not all about technicals. Those people who have a lot of followers. Someone we talked to who looks at technicals is Jared Blikre. And I want to go back to him on the floor of the New York Stock Exchange because, Jared, you're looking at charts, not technical charts necessarily. But you're looking at some of the charts that help us explain this phenomenon that we're talking about.

JARED BLIKRE: That's right. And we'll get to those slides on the Y-Fi Interactive in a second. I want to say, kind of reacting to your comments, this has been fantastic for the industry, getting new blood into the industry, people learning about different methods, fundamental analysis, technical analysis, what is short interest. And this is great. And hopefully this can continue. But we've seen a lot of damage done to some of these trades at various times. You get a big spike, and they pull back, people play in the options market.

But let's get to these charts here that I have on the Y-Fi Interactive. The first shows how the retail trader has become an increasingly big part of the market. And this is tracking market volume. So back in 2011, that's all the way at the left, retail traders accounted for 10% of the market. By 2020, this spiked up to 20%. We are now close to 25%. So this is just one illustration of the dynamics going involved here. So we go to another chart. This goes back to April of 2020, so kind of the beginning of the COVID recovery, at least in terms of the stock market.

This shows options market share. So very similar to the other one. And you see that it's spiked up to 17%, 18%. Then it's kind of been trending down. But look at this. We do see an inflection point here. And we're breaking to the upside. So you can do technical analysis on this if you'd like to. I'm serious here. And a lot of these trades have been fueled by a surge into mega caps. So mega caps were unloved for a period of time over the last seven weeks now. They really outperformed some of the best performers of the month in NASDAQ 100.

And the third slide I want to show is here are two potential portfolios. So the light blue line, the cyan line, that's the S&P 500 performance. And then if you bought half of the-- put 50% of your money in the NASDAQ, so the big caps in tech, and then 50% in the Russell, small caps, you actually have much greater performance. So we're talking about S&P 500 being up about 25%, 30% versus this basket of half NASDAQ half Russell up about 50%. Why is this? A lot of these meme trades, they have to do with small cap stocks. So we've seen a lot of those surge.

And in terms of the NASDAQ, we've also seen a lot of surge into mega caps at various times. So you put those two together. Pretty interesting that the performance is so much greater with this particular basket. Final slide here. I've showed this several times on our shows throughout the last few weeks. The red line is the NASDAQ 100. This goes back to December, November of last year. And you can see that it has been peaking here at record highs. But this other line here, this purple line, is the breadth. So we haven't seen as many stocks participating in this rally. That has to do with the concentration.

So various reasons for that. But the retail trader is a part of it.

- And just a couple of points on the back of that, Jared. For people who maybe haven't been following this all the way longer, or even if you have, what do we mean when we say retail trader? Because you see the figure frequently cited half of all US households own US stocks. So when we're talking about retail traders, we're not talking about obviously stuff that people own in there 401(k)s or own in their pensions, or own in their IRAs. We're talking about people at home, usually in front of a computer, making trades on individual stuff. So that's point one.

Point two, we tend to put these two parties in opposition, retail versus institutional. But of course, as we've talked about very frequently this year, they're not always in opposition. And when, oh, the small guys are up against the big guys, sometimes big guys are making money on the same trades.

- Well, I think really as Jared goes through this data, and you sort of think about this market moment, I mean it comes back to this idea that I've talked about in a number of contexts on this show and kind of elsewhere that everyone knows everything. I mean, there is so much information that when retail starts to sniff out a trade, or retail is loading up their bets, institutions, hedge funds, they know that immediately. Unusual volume. I mean there are-- forget about just the paid services. There are plenty of free places on the internet, free accounts you can follow on Twitter, that will flag unusual options activity, unusual volume spikes in certain names.

And I can guarantee you that there are shops with not insignificant amounts of money chasing those trends as soon as they hit the tape. And I think that's why, Sozz, retail's influence in a handful of names has been so forceful. It's being followed by big money. It's like retail is the seed and then the actual leveraged bets from actual prop shops and the like come in and say, OK, I'll ride that. You guys got an edge here? I'll ride that. And I mean, the reason AMC and GameStop traded where they do is because there's big names in that. It's not just Joe Schmo at home.

BRIAN SOZZI: I'll just add too, I think we have to split what the retail investor is. So you have I think a universe of retail investors, they've been involved in the stock market the past decade since the great financial crisis. I would say meme stocks is the next level down below retail investor. These are really new investors to the market that have joined the market because of the frenzy we saw in January. 10 million new brokerage accounts were opened in the first half of this year. That was the entire total from 2020, just an amazing stat. But I think we saw Jared down there.

Jared, let me ask you this. What we have seen during the market's pullbacks, probably the past month, month and a half, the retail investors have stepped up. They've been out there buying the dip.

JARED BLIKRE: Yeah, that comes back to what I was saying before. And they were buying not only certain meme stocks, but mega caps. I was looking at another chart, don't have it with me right now. But the retail call option volume in the FANG stocks, and then through some other mega caps in there. Tesla is always in there. That was really increasing over the last six, seven weeks when we saw the mega caps outperforming. I don't think that's a coincidence. And that's why I'm saying all of this is tied together.

And some great comments about what is a retail trader, and what is an institutional trader. The definitions can be a little bit blurry. But it goes back to what I've been saying with regard to this entire phenomenon, that once it came to market, it just kind of fed on itself. And there's this really beautiful interplay between not only the capital market structure, but also the trading structure. And I go back to another point that I hope this can continue for a time and that the retail traders who were buying call options for a while don't get too burned on that.

- All right. Yahoo Finance's Jared Blikre live on the floor in the New York Stock Exchange. Jared, we'll check in with you later on in today's program.