On Monday, the popular meme stocks Game Stop (GME) and AMC Entertainment (AMC) surged higher in yet another short squeeze episode. Fundamentally, both companies have been flirting with bankruptcy. But they have been bailed out on numerous occasions by coordinated short squeezes, allowing them to raise needed capital by issuing new stock at relatively high prices. To wit, AMC raised $250mm on Monday night.

GME were both up about 75% in trading on Monday. On Tuesday morning, AMC was trading in the pre-market session another 135% higher than Monday’s closing level, and GME was 145% better. As popularized in Dumb Money, a David vs Goliath story, small retail investors coordinating via Reddit, squeeze shorts by pushing the stock prices higher. Higher prices, in turn, force short sellers to buy back their short bets and further exaggerate the push higher. Inevitably, more shorts pile in at higher prices, and the roller coaster heads back down.

Short interest information can be found on Simp leVisor. As the graphic below shows, GME’s short interest ratio is slightly over 30. This means about a third of the shares outstanding are short.

What To Watch Today

Earnings

Economy

Market Trading Update

Yesterday, we discussed that the longer-term trends remain bullish. However, in the short term, the market is decently overbought, which will limit the upside currently. The exception to that statement is this morning’s CPI report, which could lead to a push to new market highs if it is weaker than expected. Given the substantial negative revisions to yesterday’s previous PPI report, today’s CPI report could show some cooling.

Furthermore, Powell’s still rather dovish language sent the markets running ahead of tomorrow’s CPI report. Powell already has that data and, if it were a problem, would have likely yielded a bit more hawkish language.

The MACD signal is on a confirmed “buy signal,” but as stated, the markets are becoming more short-term overbought. A bit of a correction back to the 50-DMA seems probable and would provide a decent point to add equity exposure. Notably, the 20-DMA has turned up and will likely provide a bullish cross above the 50-DMA within the next week. Such will provide additional support to any near-term correction. Continue to manage risk through position sizing, but the near-term trajectory for the market remains higher.

NFIB Portends Lower Inflation

Tuesday’s NFIB report was slightly stronger than expected, but it still remains at recessionary-like levels. The small business survey was 89.7, better than last month’s reading and expectations but well below the fifty-year average of 98.1. With CPI coming today, investors were focusing on the inflation components of the NFIB survey. Per the report, “A net 26% (seasonally adjusted) of owners plan price hikes in April, down seven points and the lowest reading since April of last year.” The second graph below, courtesy of Steno Research, shows the strong correlation (with a 12-month lead) between Core CPI and the NFIB price plans data. Assuming the correlation holds going forward, this recent uptick in inflation may give way shortly to the downtrend that started in 2023.

PPI

PPI was hotter than expected on a monthly basis but as expected on a year-over-year basis. This is because last month’s +0.2% was revised to -0.1%, thus offsetting this month’s higher-than-expected increase. The stock and bond markets shrugged off the data as, once again, there were some anomalies. For instance, there was a 4% increase in portfolio management and investment advice services. These are not higher fees but an increase in the amount of money being managed due to recent gains in the stock market. As shown below, this is a very volatile data series.

The silver lining to the higher PPI than expected data is the contributors that also feed PCE were tame. Per Pantheon Macro:

“.. better than it looks. .. many of the PPI components which feed into the core PCE deflator rose only modestly. .. All told, then, a 0.3% print for the core PCE looks like a good bet at this stage, but we can’t rule out 0.2%.”