What happened

Shares of popular meme stocks (loosely defined as companies that are popular among day traders on Reddit) were up again on Tuesday. The top meme stock GameStop (NYSE:GME) was up as much as 7.4% on the day, with Naked Brand Group (NASDAQ:NAKD) and Tonix Pharmaceuticals (NASDAQ:TNXP) gaining as much as 13% and 18.2%, respectively.

As of 1:07 p.m. EDT today, GameStop was up 5.5%, Naked Brand was 16.4% higher, and Tonix was up 1.4%.

A person counting dollar bills in their hands.

Image source: Getty Images.

So what

With high short interest, heavy trading volumes, and tons of traders watching their price movements, meme stocks can be very sensitive to economic developments. This is likely what happened this week after the Pfizer and BioNTech COVID-19 vaccine got full Food and Drug Administration approval, which is a big step toward putting the pandemic in the rearview mirror in the U.S. 

While Naked Brand Group has been a popular meme stock in the past, there may be another reason for the stock's rise today: merger talks. At the company's annual meeting, CEO Justin Davis-Rice said he has made a nonbinding agreement to sell the intimate-apparel and swimwear business to a larger company. The deal isn't finalized, but buyouts usually come at a premium to the current market price, which is likely why shares have gone from $0.50 to $0.65 in the last two trading days.

Tonix Pharmaceuticals was up so much on Tuesday after it received meeting minutes from the FDA discussing the company's application for a treatment for Long COVID Syndrome (prolonged COVID symptoms). It looks like the announcement was more noise than news, which is why the stock has given up a lot of its gains today. But it is a small step in the right direction for Tonix to eventually get its product to market.

As usual, there was no news or reason for GameStop shares to rise, except for heavy trading volume. Miraculously, the company's shares are up over 3,500% in the past 12 months, even though its business still seems to be in terminal decline. 

Now what

With GameStop at an absurd market cap north of $10 billion, and with Naked Brand and Tonix both high-risk penny stocks with share prices below $1, there are plenty of reasons for individual investors to stay far away. It can be tempting with the soaring share prices, but over the long term, the smartest thing to do is probably just watch these stocks from the sidelines.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.