Forget Big Money Monday…This week kicked off with MEME STOCK MONDAY.I never would’ve predicted it, but our managing editor Mike Merson set up our Sunday Options Arena all around meme stocks.Turns out, it was perfect timing…GameStop (GME) was up 25% on Monday…AMC (AMC) popped 45%…Even Dogecoin (DOGE), a favorite of our publisher Chris Cimorelli, was at one point up over 13%.These names have become the darling of the internet.And not just because of the phenomenal gains they produced in 2021…But often, also for a more sentimental reason.People love buying these stocks because they’re “the underdog.” GME and AMC had the chips stacked against them during the pandemic, and were some of the most heavily shorted stocks in the market.It became a battle between main street and Wall Street. The small-time speculators against the gargantuan hedge funds.And this time, the little guy won.The meme stock trade isn’t over yet, as Monday highlighted with AMC’s single-day 45% pop.And it’s drawing in even more speculators on the stock…So today, I wanted to break down the first and most popular meme stock, GME, to see if it ends up on my Bank It or Tank It list after the latest rally.
How to Chart a Meme Stock
GameStop is a video game retailer. Not exactly the type of company you’d associate with the latest rally of more than 100% in just two weeks.Or the original short squeeze, that sent the stock up 10,000% in just six months…There’s no denying it, GameStop is the OG meme stock. So, we should look at it as the bellwether for how much longer these trades have.Because just when you think these stocks are dying off, they come roaring back to life…The question now is, are we in a start of another massive run higher?Or is this just a dead cat bounce ?To figure out what we can expect from GameStop, let’s dive into the price chart…
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Take a look at the red downtrend lines going all the way back to the initial huge move in GME. The latest rally did not get back above the peak from late 2021.In other words, it’s still in a downtrend.Yet, all the attention is on the fact shares are up over 100% in just two weeks.This is when it’s easy to get caught in a dead cat bounce…Don’t get me wrong, this was an insane rally I would’ve loved to see it coming. But don’t lose sight of the bigger picture.The fact the stock doubled does little to assure investors it will continue higher from here…
GME Is a “Tank It”
And if you are thinking of jumping in now, my quick advice is: don’t.You are hoping for nothing more than another miracle rally that would have to break out of the current downtrend.This stock easily falls on my Tank It list for today.As long as it’s below the top red resistance line, I am not going long. The shares have already made the big jump, now let’s wait and see if it can hold and push higher… or give back all those gains and prove it was nothing more than a dead cat bounce.Once it closes above the highest red resistance line, we can jump in and ride the rally. I’d prefer to avoid it for now.Regards,
Chart of the Day:No Joke, This Has Potential
By Mike Merson, Managing Editor, True Options Masters
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Dogecoin looks a LOT better than most other meme stock charts out there.…Not that that’s a high bar, or anything…The OG of the OG meme trades broke out of a falling wedge pattern a couple weeks ago. Since then, it’s been grinding higher along with the rest of the crypto markets in a broad recovery.However, that’s about all it has going for it.DOGE is struggling to make a new local high and confirm an exit to this downtrend. Meanwhile, the major blue-chip cryptos like Bitcoin (BTC) and Ether (ETH) both put in new local highs and appear to have bottomed. We’re also seeing strength in some lesser-known but quality crypto projects like Solana (SOL) and Avalanche (AVAX)If the DOGE meme was as strong as it was last year, it would be outperforming the majors. Heck, it would AT LEAST be outperforming the meme trades of the legacy markets. But it’s lagging all of them. The thing about meme trades is they survive mostly on the momentum of the joke. If the joke is no longer funny, it likely won’t pay to bet on the meme.This should go without saying, but betting on quality investments will almost always outperform over the long term. I gave some not-so-subtle hints of some better places to put your money a few sentences ago.Do with that what you will!Regards,
