MDJM Ltd (NASDAQ: MDJH) is a Chinese real estate services company. They provide services to companies in that property market – consulting, strategy, training and so on. Given the dire state of the Chinese real estate market, we might think that’s a terrible business to be in.
MDJH could go either way as a business of course. We do tend to think – following Evergrande and so on – that the Chinese property market is in a slow-motion collapse. But then that could affect a consulting company either way. It could be that business rises as people consult on a way out of this – liquidators gain when corporates go bust after all – or it could be that no one has any money to consult as they’re all going bust.
The underlying business could, therefore, be going either way. It’s also true that the underlying business at MDJM isn’t really the point, as it wasn’t at GameStop and other meme stocks last year. The 100% and more (it has varied up as high as 117% at pixel time) rise premarket this morning in MDJM is about gossip and chatter online. That is, is it being set up to be the next meme stock?
Stock market prices do depend on the flow of buying and selling, those, in turn, depend upon views of the future. Reality will, in the end, impose itself but in the short term, it is beliefs that matter.
What appears to be happening with MDJM Ltd, or MDJH the ticker, is that out there on Discord, Twitter, StockTwits and so on a view is coalescing. MDJM is a small company – $18 million market cap before this rise – the short interest is very small (under 0.2%) and it’s in that hugely unfavoured Chinese real estate market.
But the thing that the chatter has latched onto is that the free float is also very small. Of that $18 million market cap only some $4.3 million is actually the free float. This is therefore a tiny, tiny, free float in terms of the money available to drive that stock price at MDJM. Any significant flow of money into the stock will drive the MDJM stonks or whatever the current jargon is.
What happens next depends upon our view of what is happening. We all recall GameStop, Hertz, Cineworld and so on. Enough people piling in as speculators will move a stock price against the usual fundamentals. It’s also true that there’s something called a pump and dump. Take a position, get people excited in what might be the next meme stock and as it rises sell out and take the profit from having started the meme.
Well, which is happening here? The answer then determines the trading position. Long if we think that there’s more roaring and stonking to happen at MDJM Ltd. Short at MDJH if we think it’s a pump and dump and the action has already happened.
There’s no real way to tell at present because there’s no underlying news about or from the company, there’s just that stock price move to observe. The difference between MDJM and GameStop – say – is that there are no large short positions that must just be covered in the face of this stock price rise. So there’s no self-reinforcement to the rise, it’s purely buying pressure alone. MDJM, the new meme stock or a more classic pump and dump? Either are risky, the choice is yours.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.