The meme stock frenzy sweeps through the US stock market: Retail investors use social media to drive up multiple stocks, while short squeeze risks raise warnings from institutions

Zhitong Finance APP learned that recently, a new wave of meme stock speculation has swept through the U.S. capital markets, with retail traders' enthusiasm for high-risk assets continuing to rise.

This speculation frenzy, driven by social media, initially focused on the digital real estate company Opendoor Technologies (OPEN.US), whose stock price soared 312% in six days from less than $1, with options trading volume exceeding 2 million contracts, surpassing the levels seen during GameStop's (GME.US) peak in 2021. However, in the following two trading days, the stock experienced a continuous decline, with a single-day drop of 20% on Wednesday, and trading volume surged to over 340% of the average level in the past three months.

The speculation feast quickly spread to more low-market-cap stocks. Struggling retailer Kohl's (KSS.US), which has short interest accounting for 48% of its free-floating shares, became the focus, with its stock price soaring 38% in a single day on Tuesday, followed by a sharp 14% correction during Wednesday's trading.

Wearable device manufacturer GoPro (GPRO.US) has risen 75% this week, marking its largest single-week gain in history, attracting significant retail interest due to its short position accounting for nearly 10% of its floating shares. Additionally, the company has been involved in a patent infringement dispute with competitor Insta360 this year.

Doughnut manufacturer Krispy Kreme (DNUT.US) saw its stock price surge 35% during Wednesday's trading, although it ultimately narrowed to a 4.6% gain, but the overall increase for the week still reached 38%, with bullish options trading volume surpassing 1 million contracts, a historical high. Notably, the company's stock price has been under pressure recently due to the suspension of its quarterly dividend and the termination of its partnership with McDonald's, with 30% of its floating shares sold short providing a basis for a short squeeze

Max Gokhman, Deputy Chief Investment Officer of Franklin Templeton Investment Solutions, pointed out that the current logic of retail investors has fundamentally changed: "For meme stock traders, company fundamentals are no longer the core of decision-making; the influence of social media opinion leaders is key.

A recommendation from a TikTok influencer can instantly drive hundreds of thousands of investors to follow suit." Data from Citadel Securities shows that retail investors have net bought cash stocks for 19 consecutive trading days, setting the longest record since the meme stock craze in 2021, with the 10-day average of retail participation tracked by Goldman Sachs rising to a historical high of 25%.

Jack Janasiewicz, Portfolio Manager at Natixis Investment Management Solutions, believes that the current market shows obvious rotation characteristics: "This resembles a broad sector rotation, where previously overbought stocks are being sold off, while oversold stocks are experiencing a short squeeze." Joe Gilbert, Portfolio Manager at Integrity Asset Management, warns of risks: "Retail confidence is at an unprecedented high due to the recent success of buying the dip strategies, but this consensus expectation precisely lays the groundwork for a market correction."

Data shows that in this round of meme stock trading, the force of short covering is significant. Taking Opendoor as an example, its stock price surged while short positions faced immense pressure, and stocks like Kohl's with high short ratios also showed signs of a short squeeze. However, unlike in 2021 when AMC (AMC.US) and GameStop used stock price increases to finance through equity offerings, most companies currently have not announced capital operation plans, and the market is focused on whether these companies can convert short-term stock price fluctuations into long-term value.

The sustainability of this speculative feast is being tested. Krispy Kreme fell from a 35% increase to 4.6% on Wednesday, Opendoor has seen two consecutive days of pullback, and GoPro's closing gain on Wednesday narrowed to 12%, all indicating that the current upward trend is unstable.

Analysts point out that during this critical period of the Federal Reserve's policy shift, the continuous influx of retail funds into ultra-small-cap stocks reflects an increase in market risk appetite but also conceals the risk of a liquidity turning point. As more low-liquidity stocks enter the speculative spotlight, this social media-driven capital game may face more severe volatility