Clover Health Investments Corp (NASDAQ:CLOV) is enjoying a boost today, up 23.5% at $11.11 this afternoon, with many Reddit-based traders now targeting a fresh round of stocks with high volumes of short interest. The security is still trading well below its Jan. 4 record high of $17.45, and sports a 33% year-to-date deficit, though it's eyeing a close above its 200-day moving average for the first time since its formation in April. 

The surge has sparked a melee of activity in the options pits, with 340,000 calls and 29,000 puts exchanged so far -- eight times the intraday average. The most popular is the June 11 call, followed by the 10 call in the same monthly series, with positions being opened at the former. This suggests these traders expect CLOV to maintain some of today's price action up until these contracts expire on Friday, June 18. 

Calls have been quite popular lately. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CLOV sports a 10-day call/put volume ratio of 14.06, and its Schaeffer's put/call open interest ratio (SOIR) stands at 0.21. 

This sentiment isn't reflected elsewhere, though. As we mentioned earlier, CLOV is heavily shorted at the moment, with short interest rising 7.7% in the last reporting period. The 40.46 million shares sold short make up a whopping 36.1% of the stock's available  float. 

Analyst sentiment, meanwhile, is lukewarm. Just one of the three covering CLOV call it a "strong buy," while two say "hold." Plus, the 12-month consensus price target of $9.67 is a 13.4% discount to current levels. 

RA Medical Systems Inc (NYSE:RMED) is shooting out of penny stock territory this morning, up 65.2% at $8.06 at last check, as the heavily shorted stock looks to be one of the latest victims of the "meme" stock craze. In fact, short interest on RMED is sitting at its highest volume on record, and the 1.06 million shares sold short make up a hefty 23.9% of the stock's available float. 

RMED's journey on the charts since going public back in 2018 has been dismal, with the stock initially traded well above the $510 level. The equity hit rock bottom on May 19, touching a record low of $2.85 -- quite a ways away from its 2018 levels. The 20-day moving average kept pressure on the stock during its most recent leg lower, though recent volatility has RMED once again distancing itself from the trendline. 

The stock is no stranger to wild price moves. A little under a month ago, RA Medical Systems stock saw an 18.1% post-earnings pop, though the 200-day moving average kept a lid on these gains. Should today's price action hold, RMED could be set to clear this trendline for the first time since February 2020, and notch its biggest one-day jump ever.

This morning, construction name US Concrete Inc (NASDAQ:USCR) agreed to be bought by Vulcan Materials (VMC) for $74 per share in cash, a move that was unanimously approved by the boards of directors of both companies. That's a nearly 30% premium to USCR's Friday closing price of $57.14, and a receipt that totals around $1.29 billion. In response, US Concrete stock is flying up the chart, last seen 27.8% higher to trade at $73.01.

After a month of closing beneath the $60 mark, with added pressure from the 80-day moving average, today's positive price action has the security roaring back toward its March 31, three-year high of $78.99. Already up a stellar 173% year-over-year coming into today, USCR is adding big numbers to its 84% 2021 lead.

A shift in the options pits could propel the equity higher. This is per U.S. Concrete stock's 50-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits in the 91st percentile of its annual range. This suggests long puts are being picked up at a faster-than-usual pace. 

Now seems like a good opportunity to weigh in on USCR's next move with options. The equity's Schaeffer's Volatility Index (SVI) of 47% sits higher than just 1% of all other readings in its annual range, suggesting options players are pricing in extremely low volatility expectations at the moment -- a boon for premium buyers.

“As long as the SPX trades within the channel in place since mid-November that I have displayed week after week, it is a win for the bulls, as the lower and upper boundary of this channel is rising on a daily basis, implying support and resistance levels move higher daily… even if the SPX breaks below its lower channel boundary, another area of formidable support lies between 4,050-4,100.”

          - Monday Morning Outlook, June 1, 2021

The S&P 500 (SPX - 4,229.89) has not rewarded bulls or bears since a tri-star doji pattern in late April, followed by a move back into a channel in place since mid-November. The only exception were the most prescient short-term timers that turned bearish at the May 7 close, and bullish at the May 12 and/or May 19 closes.

The benchmark’s price action since mid-April is best described as sloppy, with a series of short-term peaks and valleys, and a couple periods of sideways action. There have also been story lines, with sector rotation being one of them, as well as a rather impressive resurgence of “meme stocks” such as AMC Entertainment (AMC), Blackberry (BB), Gamestop (GME), and Bed, Bath & Beyond (BBBY), all of which are highly shorted. Plus, trading opportunities for those focused on individual stocks and/or sectors have been plentiful, amid the chaotic broader-market action.

Since May 13, all SPX closes have been contained inside the channel I have included in this commentary. This might be considered a win for the bulls, though, as I described last week. With that being said, the bottom of this channel as we enter this week’s trading is at 4,148, with the upward-sloping 50-day moving average currently sitting at 4,138. At the end of the week, the bottom boundary of the channel is at 4,166.

The upward boundary of the channel – or the higher levels of potential resistance with the passage of time -- is at 4,283, with Friday’s upper boundary at the round 4,300 century mark. However, note that the SPX failed to take out this year’s early May closing high of 4,233 last week, which is another level to tune into.

“The Federal Reserve will soon begin selling off the corporate bonds and exchange-traded funds it amassed last year through an emergency-lending vehicle set up to contain the Covid-19 pandemic’s economic fallout.  The vehicle, known as the Secondary Market Corporate Credit Facility, or SMCCF, held $5.21 billion of bonds from companies including Whirlpool, Walmart and Visa as of April 30. In addition, it held $8.56 billion of exchange-traded funds that hold corporate debt, such as the Vanguard Short-Term Corporate Bond ETF.”

          - The Wall Street Journal, June 2, 2021

The SPX’s price action can be interpreted as resilient in the context of the news flow. In other words, the Fed has hinted that it is almost time to talk about tapering mortgage and treasury bond purchases. Such talks were followed by a statement on Wednesday that the Fed will begin to gradually sell off the corporate bonds and exchange-traded funds (ETF) it began acquiring last year, in an effort to shore up credit markets amid the Covid-19 pandemic.  

While the stock market has lost some steam amid the Fed headlines, it might be discouraging to bears that it has not aggressively declined in response to those statements. In fact, the SPX comes into this week just three points below its early May, all-time closing high. This is important, as some bears blame the Fed for manipulating stocks higher with its easy-money policy and aggressive actions last year to ensure the viability of credit markets. Even the specific equities and ETF mentioned in the Wall Street Journal excerpt above took last week’s news in stride. 

Discussions about SPX component short interest being at extremely low levels that preceded a 2007 bear market, as well as notable corrections in 2011 and 2012, are still worth keeping on your radar as the Fed moves on to being less supportive. If market participants decide the economy cannot thrive amid a less supportive Fed, you will see the SPX’s technical backdrop deteriorate. As it stands, a reopening economy amid vaccine rollouts in the U.S. and abroad seems to be more significant than the Fed’s tapering talks.

On the volatility front, a couple of graphs could be hinting at lower volatility in the weeks ahead. The Cboe Volatility Index (VIX - 16.42) retreated below its 2021 half closing high at 18.60, after popping above it on Thursday morning. It wasn’t long after I tweeted the comment above that the SPX rallied for the rest of the day and through Friday. Per the chart below, the 18.60 area acted as resistance last week, which is the first step to achieving a new low in 2021. In order to reach that low, it must move below 15.38.

The following chart gives me reason to believe lower volatility and higher equity prices are on the immediate horizon. Note on the graph below that large speculators on VIX futures have their smallest net short position since June 2020. 

This group of traders is usually short the VIX futures market, so I look at the net short position relative to the historical past. As the positioning of this group is usually extremely wrong, one can make the case for lower volatility expectations in the near term.

In other words, the VIX has moved higher when this group has had an abnormally large short position on VIX futures. But when they move into a rare net long position, or an unusually small net short position, lower volatility tends to follow. In fact, note on the graph below that the VIX declined in June through August last year, amid a small net short position on VIX futures at the beginning of the decline.

Lower volatility and higher stock prices might surprise seasonality traders with the “sell in May and go away” mentality.  

Todd Salamone is Schaeffer's Senior V.P. of Research

Continue reading:

• The Week Ahead: Second Week of June Highlights Consumer Data Amid Economic Reopening
• Indicator of the Week: Can the S&P 500 Buck the "Summer Doldrums" This Year?

There isn't much in the way of earnings this second week of June, as the tail-end of earnings season comes to a close. This week starts off relatively slow as well, though Thursday will bring a deluge of economic data. Consumer data will be highlighted throughout the week, starting with today's consumer credit report, which could be interesting as the economy continues to reopen and mask requirements are lifted. Investors will also be eyeing the Federal budget balance. 

A few more earnings reports will trickle in next week as earnings season starts to wind down. Some highlights include quarterly reports from Chewy (CHWY), Dave & Buster's (PLAY), RH (RH), and Signet Jewelers (SIG).

The week will start off slow today with the consumer credit report.

The following public companies are slated to release quarterly earnings reports today, June 7:

G-III Apparel Group Ltd. (NASDAQ:GIII -- $31.44) designs, sources, and markets women's and men's apparel. G-III Apparel will report its Q1 earnings of 2021 before the bell today.

Coupa Software Inc. (NASDAQ:COUP -- $230.23) provides cloud-based business spend management platform. Coupa Software will report its Q1 earnings of 2021 after the market closes today.

HealthEquity Inc. (NASDAQ:HQY -- $81.10) provides technology-enabled services platforms to consumers and employers in the United States. HealthEquity will report its Q1 earnings of 2021 after the market closes today.

Marvell Technology Inc. (NASDAQ:MRVL -- $48.70) designs, develops, and sells analog, mixed-signal, digital signal processing, and embedded and standalone integrated circuits. Marvell will report its Q1 earnings of 2021 after the market closes today.

REV Group Inc. (NYSE:RVLV -- $56.51) operates as an online fashion retailer for consumers. REV Group will report its Q1 earnings of 2021 after the market closes today.

Stitch Fix Inc. (NASDAQ:SFIX -- $55.52) sells a range of apparel, shoes, and accessories through its Website and mobile application in the United States. Stitch Fix will report its Q3 earnings of 2021 after the market closes today

Vail Resorts Inc. (NYSE:MTN -- $333.38) operates mountain resorts and urban ski areas in the United States. Vail Resorts will report its Q3 earnings of 2021 after the market closes today.

Looking ahead to tomorrow, Tuesday will bring job openings and trade balance data. All economic dates listed here are tentative and subject to change.

For over 15 months, investors have enjoyed a historic bounce-back rally in the U.S. stock market. Since the widely followed S&P 500 hit its pandemic low on March 23, 2020, the SPX has surged back by as much as 88%. To put this figure into context, the very long-term average annual total return (including dividends) for the stock market is about 7%.

But for some retail investors, these gains would represent peanuts.

Beginning in January of 2021, retail traders communicating on Reddit and a handful of other social media platforms began piling into stocks that were heavily shorted by institutional investors and/or had very small floats (the amount of tradable shares). By purchasing shares and call options in these stocks, retail investors were able to enact short squeezes, leading to skyrocketing share prices.

This rapid surges in these specific stocks followed by their equally rapid declines are the result of retail speculation. Traders were not buying shares of GameStop Corp. (NYSE:GME) because there was a belief that the company had a hidden path to growth that would not only reverse its fortunes, but also revolutionize the gaming industry.

As in all historical instances of speculative manias, traders bought securities that are on the rise because the price was on the rise, and these traders were counting on their ability to sell those shares at a significantly higher price. That kind of dynamic in the stock market is not sustainable and, thus, the bubble always bursts.

There is more to the meme stock mania than sheer momentum alone, though. The day traders of Reddit’s thread titled r/WallStreetBets believed that GameStop stock was fertile ground because so many professional investors were shorting GME. These traders believed that through force of numbers from the retail crowd, they would be able to squeeze out the short sellers and force GME pricing even higher. That plan actually worked -- but just for a few days.

Though many of these meme stocks -- companies that have been lauded for their popularity on social media, rather than their actual operating performance -- have given back most of their gains from earlier this year, there are three meme stocks that have held strong on profits for retail traders in 2021.

AMC Entertainment Holdings, Inc (AMC): AMC was piled into by Reddit-based traders for essentially the same reasons as GameStop. AMC Entertainment stock had a higher level of short interest and a compelling draw for a short squeeze in late January. AMC Entertainment stock increased by nearly tenfold since becoming a meme stock.

BlackBerry Limited (NYSE:BB): In the first four weeks of January 2021, BlackBerry stock nearly quadrupled, hitting a 10-year high, apparently driven by aggressively bullish retail investors in the aforementioned r/WallStreetBets group on Reddit. BlackBerry stock has more than tripled since becoming a meme stock.

GameStop (GME): GameStop became the most publicized meme stock beginning in January of 2021 when CME shares spiked hundreds of dollars in a matter of days. Users on the subreddit, r/WallStreetBets, began buying GME en masse after traders learned that hedge fund had shorted GameStop stock over 150%.

Nokia Corporation (NYSE:NOK): As Nokia has been playing a major role in 5G deployment globally, NOK became a targeted “meme stock” by Reddit’s r/WallStreetBets due to the fact that prominent hedge funds were heavily shorted Nokia stock, owing to the global industrial slowdown.

Sundial Growers Inc. (NASDQ:SNDL): Sundial Growers stock has more than doubled in value this year, but this is really primarily due to the hype from r/Wallstreetbets, causing SNDL to become a meme stock.

Tilray, Inc. (NASDAQ:TLRY):  Tilray is a business with great foundations in the cannabis industry that is still only at its early stages. Tilray stock on the riskier side of investments, but the potential for high returns can come with this stock. Because of that, r/WallStreetBets locked it onto their meme stock list back in January. TLRY's stock price was hanging out around the $9 per share mark for a number of months prior to shooting up to a peak of $67 in February 2021. This spike was quickly followed by a 50% drop in the stock price which looked an awful lot like a pump and dump.

Here is a quick overview of how meme stocks "work:"

In the first phase of becoming a meme stock, a handful of traders/investors need to believe that a particular stock is undervalued and begin to buy that stock in large quantities. This causes the stock price to slowly begin to increase. Once phase one is completed, the traders/investors who are paying close attention to the market begin to notice the significant increase in trading volume on the stock. This causes more and more individuals to begin buying into the stock, causing the stock price to skyrocket.

By the time we reach the FOMO (fear of missing out) phase, word about the stock has spread like wildfire across social media and online forums. Thus, the fear of missing out takes hold and even more retail investors join in on the ride up. Inevitably, though, after a few days, buying peaks and the early adopters begin to cash out. Similar to the buying phase, the selling phase looks a lot like a chain reaction as fear sets in and the stock price plummets.

Because of this meme stock cycle, it is primarily the early adopters who really turn a profit from these trending meme stocks. Once the meme stock cycle enters into the FOMO phase, it’s likely too late to make a profit despite that being the exact point when retail traders really buy into the trade.

Keep in mind that the meme stocks are not a class of investments that are covered in any textbook. Meme stocks are really just a category of stocks that have seen rapid growth and high levels of chatter on social media channels including Reddit, TikTok, and Twitter. The valuation may not (and often times does not) line up with the price changes or the hype surrounding the given stock.

Though the week was a short one with markets closed on Monday in observance of Memorial Day, there was still plenty going on to keep investors on the edge of their seats. Tuesday saw the Dow lock in its fourth-straight win to kick off the month of June, as U.S. Covid-19 cases continued to drop while vaccination rates accelerated. By Wednesday, the blue-chip index extended its lead even more, while all three major indexes logged muted wins as inflation fears continued to stoke investors' anxieties. The Dow started Thursday with a triple-digit drop, but a rebound in reopening plays and "meme stocks" helped the index pare a majority of losses by the afternoon. Closing out the holiday shortened week, the major benchmarks are eyeing weekly wins, thanks to a better-than-expected drop in the unemployment rate.

Billion-Dollar Deals, Mergers, and Partnerships

There was a host of billion-dollar deal, merger, and partnership news that had investors excited. Cloud name Cloudera (CLDR) announced it will be acquired by Clayton, Dubilier & Rice for a receipt of $5.3 billion. E-tail giant Etsy (ETSY) announced it will be buying Depop, a fashion brand catering to Gen-Z tastes, for $1.63 billion, in an attempt to attract younger customers. Tilray (TLRY) and Aphria are still making headlines since announcing their merger, and at least one analysts hit the former with a bull note in response, saying Tilray stands to have plenty of post-merger strength. Lastly, Casey's General Stores (CASY) partnered up with Uber Technologies' (UBER) Uber Eats to provide delivery from over 750 locations, seven days per week.

"Meme Stocks" Make a Comeback

It looks like "meme stocks" are primed for another run, as this week saw plenty of action among names heavily targeted by retail traders on sites like Reddit. Marijuana name Sundial Growers (SNDL) is one such stock, which tacked on 55% in a week. Blackberry (BB), an old favorite, also returned to the spotlight. The tech icon has added nearly 200% year-over-year, and was the second most mentioned stock on Reddit's WallStreetBets forum. Last, but certainly not least, is the forum's favorite name, AMC Entertainment (AMC). The movie theater operator shot up 38% on Wednesday, though traders were dealt a blow after AMC raised more than $230 million in share sale to Mudrick Capital.

How the SPX Might Buck the Summer Doldrums

Earnings season is nearing its end, though reports from Chewy (CHWY), Dave & Buster's (PLAY), RH (RH), and Signet Jewelers (SIG). Plus, a deluge of economic data is due out, including consumer data, jobless claims data, and the latest Federal budget balance sheet. In the meantime, see whether or not the S&P 500 (SPX) can buck the "Summer Doldrums" this year.