#59 S2N: Meme is Back – Meow

S2N Spotlight

The Wall Street Journal put out an article last week saying that “Thrill is Back” with retail traders. Robinhood reported an increase in trading activity, with a record in options trading in February. The WSJ showcased many other examples of exuberant trading sentiment over the last few months to make their point about retail traders being back in force. Most people will remember Robinhood as a household name for retail trading as the work-from-home trading boom took off with COVID isolation and government stimulus checks.

One of the stocks that became a masthead for the retail trading mania was a company nobody had heard of called GameStop. I have marked the chart below with what I called peak mania; more on this below. It seems that the WSJ was on point here, as yesterday the GameStop share price jumped 75%. The reason why the stock jumped is because of a tweet (meow) from a profile called – Roaring Kitty.

You might recall, during the COVID crisis, a bunch of Reddit retail traders bandied together and took on the establishment, driving stock prices up in wild moves devoid of any fundamental reasons other than herding behaviour. One of those lead traders, Keith Gill, otherwise known by his Twitter handle @theroaringkitty, was chief among those driving hype around GameStop. He famously took a $53k Robinhood account and turned it into $48 million. He testified before Congress and became one of the winners, cashing in his chips and disappearing. Well, that was until yesterday; after 3 years of nothing, he is back tweeting absolute rubbish, and GameStop is off to the moon.

I spoke yesterday about the ridiculously low VVIX (volatility of volatility), which explains some of this thrill-seeking lack of fear psychology. I have created a chart with both VIX’s together and zoomed out for a long-term perspective. Yesterday, the VIX went up 8%, but you cannot even see it on the chart, so there is still a lot of complacency in the market.

S2N Observations

As earlier readers will know, I called for a cocoa short around 10,500, and we covered around 8,000. For those still short, yesterday was a great day; cocoa dropped -27.94%

I am not going to have time today to go into this in greater detail; however, I want to raise a red flag again regarding US corporate bond spreads; they are priced too aggressively. I have inverted the spreads on the left Y-axis and plotted them together with the SP500 to show the close relationship these 2 assets share. It looks like the SP500 is about to make new highs, which should mean the spread will get even more expensive. I am pretty sure there is a good trade here, which I will share in future letters.

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