We believe "Meme" (High Attention) stocks are trouble

Meme Stocks = High Attention Stocks

The Meme Stock Factor helps detect short-term, attention driven liquidity imbalances that can cause unsustainable moves in stock prices.

The Meme Stock Factor is calculated as a stock’s average daily dollar trading volume over the last month divided by the stock's total market capitalization.

Dollar trading volume represents the level of investor interest in a stock.

Market capitalization represents the company's relative size and importance.

Source: S&P Global Market Intelligence.

Ever since the creation of stock markets, investor emotions and enthusiasms have played a major role in driving prices. In the past few years, however, the amount of emotional trading may have reached a historic apex, as groups of shut-in amateur investors piled stimulus money into fun-seeming stocks with little regard to economic fundamentals. Thus emerged high attention “meme stocks.” Valuations went vertical, then fell precipitously. Short sellers suffered, and some even closed up shop. By any qualitative assessment, the action in stock markets appeared unprecedented.

Source: S&P Global Market Intelligence.

Source: S&P Global Market Intelligence.

  • High Attention: Invested in all stocks, rotating monthly, that have higher than 5% of their market cap as recent daily turnover.

  • Not High Attention: Invested in all stocks, rotating monthly, that have lower than 5% of market cap as recent daily turnover.


The early 2020s put investors into uncharted territory, surpassing the peak of the dot-com bubble.  The examples above show returns to “Meme” and “Not Meme” portfolios – first, through the peak and crash of the dot-com bubble and, second, from 2018 to today.

Source: S&P Global Market Intelligence.

Attention-getting meme-like stocks are a thrill to hold as they become objects of interest, but in the long run reaching meme status has not historically been a favorable achievement. The chart above shows in blue a portfolio of stocks, rebalanced monthly, that in the previous month reached meme status by turning over their entire market valuation in a single month. As you can see from the trajectory of the blue line, buying “High Attention” meme-like stocks as attention is peaking has a negative expectation. The green line, meanwhile, shows “Remaining” stocks – those that did not reach the trading volume/attention threshold. Their historical returns have been much more positive than those of their “High Attention” cousins.

The Meme Stock Factor has been integrated into the Counterpoint Tactical Equity Fund's machine learning model to improve return forecast accuracy.

Today's Top Meme Stocks

Click on the desired ticker to see historic Meme Stock Factor score below the table.

Methodology

Counterpoint collects market, fundamentals, and other financial data from S&P Global Market Intelligence to analyze a tradable universe of global stocks. The returns displayed above are re-calculated daily based on live market and financial data.

The Meme Stock Factor is calculated as a stock’s average daily dollar trading volume over the last month divided by the stock’s total market capitalization.

The “Average Stock Attention Score” is calculated as the percentage of stocks in the market at any one point in time that have a meme score above 0.05, which represents a stock averaging daily turnover volume of 5% of its market capitalization for the last month.  This is equivalent to a full turnover of the total market capitalization over the last 20 trading days, which approximates to one month.

The “High Attention” portfolio represents a monthly rebalancing basket of all U.S. stocks above $100 million market capitalization that had total monthly dollar turnover greater than their market capitalization during the preceding monthly period. “Not High Attention” characterizes all of the remaining stocks above $100 million of market capitalization. These return calculations assume no transaction costs or market frictions.  These returns do not represent the returns of the Funds’ models. View the fund’s top 10 holdings.

 

Important Risk Information

Past performance does not guarantee future results. Investing involves risk, including loss of principal. There is no guarantee that this, or any, investing strategy will be successful.

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Mutual Funds involve risk including the possible loss of principal. Investors should carefully consider the investment objectives, risks, charges and expenses of the funds managed by Counterpoint Funds. This and other important information about the funds is available in their prospectuses, which can be obtained at counterpointfunds.com or by calling 844-273-8637. The prospectuses should be read carefully before investing. The Counterpoint Funds fund family is distributed by Northern Lights Distributors, LLC member FINRA/SIPC. To reach the Counterpoint sales team, please refer to our contact page.

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5039-NLD-1/10/2022

 

 

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