HKD: Meme Stocks are Back

AMTD Digital's meteoric rise (and fall) shows meme stocks are far from dead. But what does it say about the market's outlook, and is it time for a rebound in retail-trader-friendly stocks?

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It's all connected

Like most meme stocks, AMTD Digital's rise "came out of nowhere". It was popular on Reddit, but nothing compared to GME, so, it's hard to pin down exactly why this stock has been pumped up so much. 

There is no evidence of a short squeeze either, i.e. investors who were short-selling beeing forced to cover shorts, like in the case of GameStop. 

The market cap of HKD has far surpassed other meme stocks, bumping up to $300B in value compared to just $30B in GME. Even with the stock having slid back from its highs, the valuation at the time of writing is higher than that of many household names like Intel and AT&T.

The business itself appears solid but nothing out of the ordinary. AMTD Digital generates revenue from fees and commissions in its digital financial services business.

But AMTD Digital could have just been lucky with the timing. It IPOed on July 15 at $7.80, just two days before US indices generally hit a bottom, and has been climbing ever since. This also coincided with markets shifting their bets on the Fed, expecting that the current hiking cycle was close to being over. With investors looking to get in on the bottom, there could have just been a perfect storm for an upstart stock.

Retail still optimistic?

The stock’s rise and fall can only be a classic pump and dump. As a reminder, this is where usuall a smaller group of investors buy the stock then afterwards start telling others to buy it via message boards etc, usually with highly exaggerated promises for investment returns. Then once enough people have bought in they sell their shares, the selling pressure of which usually creates a cascade of selling.

The size of the run up in the price suggests the original instigators are more likely to be caught than if it was something that went under the radar. For everyone else investing on Reddit etc, it will have been a matter of trying to time the rise before the fall - a very risky endevour.

The parent company of HKD AMDT Idea was happy to see its shares skyrocket but is now distancing itself once the shares started to crash.

Dead cat bounce likely

Although volatility remains elevated and price swings can offer significant returns, traders should be cautious about any upside. The crash sent prices nosediving from $2600 to $600, where the 78.6% Fibonacci retracement of the full move lies. The bounce could be short-lived and poses a great risk as it resembles a dead-cat-bounce.

Currently, at $850, HKD may seem bullish in the short-term, but without volumes increasing the 61.80% Fibonacci at $980 is major resistance. As such, there are more chances the down leg continues after a brief retracement than getting past $1000.

Source: Barchart.com

Key takeaways

AMTD Digital is a meme stock that's been popular on Reddit, but it's hard to figure out why it has pumped. More impressive is that HKD has a higher market cap than GME and has been climbing during a market slump. The timing seems to have played a role in the stock’s success.

The stock's rise resembles a pump and dump and isn't directly related to the indices’ performance, though seems to have happened as market sentiment improved.