Guardforce AI (NASDAQ: GFAI) stock did very well around a month back. In fact, in its rise it went up some 600%. As we said about Guardforce AI there really was no reason for this. Sure, there's that cute AI in the name but really. There's a significant short position (some 20% at present) which could be squeezed but other than that and some fashionable speculation there was and is nothing very much here. At which point we get to do the victory dance for only a month later Guardforce AI is back down to a little below where it started. Which is a vindication of our position that this was something between a meme stock and a market mania.
This is all depressingly common in Far East related small cap stocks at present of course. Top Financial is another example, MEGL and others followed. Of course, before this there was the absurdity of the AMTD twins - really, someone doing something metasversey in Hong Kong equal in value to the entirety of Goldman Sachs? Yet HKD was at one point. That didn't last either and in that is the correct way to view these microcap movements. Very interesting, highly exciting even, but fraught with danger.
Guardforce AI stock price from NASDAQBut what we all want to know is what is driving this volatility - because if we know that then we can know how to trade it. The problem is that other than the madness of crowds there is nothing driving these stock prices. If we've a small cap stock - with a substantial short position is better - then it doesn't take much buying to push the price up. With the markets primed like they are - all those other meme stocks that came before - then that first price movement just leads to others diving in. It's called a “momentum trade”, just follow price movements. The only problem with this is that as there's no “real” reason for the first price move then it's impossible to tell when it's going to end.
Another market description of this sort of thing is “a ramp” and if it's done deliberately it's normally illegal in a stock market. If it just happens, well. The problem for us out here is that without knowing then it's impossible to know when it will end. And that means it's probably our money that the ramp is going to be taking.
As we've said before and will no doubt say again. These sorts of price movements in these sorts of stocks are gambling, betting. Hey, that can be a very fun game too - but don't ever confuse it with investing. Betting is something done with the money otherwise spent upon beer, investing is what we do with pensions.
