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GameStop jumps nearly 19%; 'meme stocks' fade after another wild ride

Stock MarketsFeb 25, 2021 08:01PM ET
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2/2 © Reuters. FILE PHOTO: A GameStop store is pictured in New York 2/2

By Aaron Saldanha, Thyagaraju Adinarayan and David Randall

(Reuters) - GameStop Corp (NYSE:GME) shares rallied on Thursday, finishing with double-digit gains despite a sharp retreat from session highs and leading a surprise resurgence of so-called "stonks" championed online by passionate retail investors.

GameStop shares, which doubled their value on Wednesday, hit $160 at Thursday's open before being halted after several minutes of trading and fell to around $129 before the second halt. The stock closed for the day at $108.73 for an 18.5% gain, after soaring almost 90% at the session peak.

Other "stonks" or "meme stocks" popular on sites such as Reddit's WallStreetBets also saw their rallies fade. Headphone company Koss Corp closed up 16.8% gain after rocketing nearly 61% during the session. AMC Entertainment (NYSE:AMC) ended down nearly 9% after jumping more than 15% during the session.

Analysts were puzzled by the rally that came even as the benchmark S&P dropped 2.4%. Some ruled out a short squeeze like the one in January that battered hedge funds that had bet against GameStop and were forced to cover short positions when individual investors using Robinhood and other trading apps pushed the video game retailer's shares as high as $483.

"The power of the “three R’s” (Robinhood, Retail, Reddit) are back in play," said Neil Campling, head of technology research at Mirabaud Securities.

The number of GameStop shares shorted stood at 15.47 million, analytics firm S3 Partners said Thursday, with short interest accounting for 28.4% of the float, compared with a peak of 142% in early January.

Wednesday's late day rally added $664 million in mark-to-market losses for investors betting against GameStop, and short sellers were down $10.75 billion in year-to-date mark-to-market losses midday Thursday, according to S3.

Some analysts said the rally may be partly fueled by a fear of betting against GameStop.

“There are not a lot of people who are just sitting there, ‘oh yeah, let’s for fun, let’s just short GameStop and get my head ripped off.' The investors learn.,” said Dennis Dick, a trader at Bright Trading, on the Benzinga podcast.

Some investors may be jumping on the GameStop bandwagon hoping to reap gains similar to turbo-charged advances of January and then sell the stock, said David Starr, vice president of quantitative analysis at Simpler Trading.

"All of these stocks are once again rising together. It demonstrates that there is nothing intrinsic in the companies themselves," he said.

Former GameStop shortseller Citron Research said the company should buy online gambling company Esports Entertainment Group Inc

“It would be an easy acquisition for GameStop to tuck in right now,” Citron's Andrew Left told Reuters in an interview. “Some people say it would be a ‘Hail Mary pass’ but I think it would be a major pivot.”

HEAVY VOLUME

More than 145 million shares of GameStop had changed hands by mid-morning, almost triple its 30-day average volume of 62 million, yet below the more than 190 million shares that traded hands daily in late January.

The surge came after Reddit trader Keith Gill, who runs the YouTube channel Roaring Kitty, bought additional GameStop shares last week. Last week, Gill testified in the U.S. Congress: "I like the stock," words since quoted by hundreds of online followers and featured in memes on financial sites.

This week's GameStop rally began the day after the retailer announced the resignation of Chief Financial Officer Jim Bell as the company focuses on shifting into technology-driven sales.

Reddit forums were buzzing again with bullish GameStop posts on Thursday.

"Bought lots more #GME today, let's keep fighting !!," wrote Reddit user Fundssqueezzer.

In January, GameStop shares skyrocketed by more than 1600% as retail investors, urged on by WallStreetBets, bought shares to punish hedge funds that had taken an outsized short bet against it.

Gabriel Plotkin's Melvin Capital hedge fund was left needing a $2.75 billion lifeline from Citadel LLC and Point72 Asset Management.

Investing legend Charlie Munger, longtime business partner of Warren Buffett, criticized the risky trading strategies employed by some traders on Reddit.

"It's really stupid to have a culture which encourages as much gambling in stocks by people who have the mindset of racetrack bettors," said Munger, Berkshire Hathaway (NYSE:BRKa)'s vice chairman.

GameStop jumps nearly 19%; 'meme stocks' fade after another wild ride
 

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Comments (7)
Viking Fire
Viking Fire Feb 26, 2021 2:17AM ET
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From what I can tell AMCs problems stem from its incredible growth and are based on realestate issues, more prevalant in covid period. Studios arent giving 800 million dollar profits for streaming (any more then stadiums are going away for sports because of streaming) and vendors and corn farmers are attached to them at the hip. So can someone explain why they are so dead set against AMC as the economy opens up while not referencing the same exact issues facing imax, cinemark, or live nation which are multiples higher?
Viking Fire
Viking Fire Feb 26, 2021 2:17AM ET
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The realestate issue is easy to solve and would allow them to quickly adjust. Oddly, theyve chose not to abandon their commitments to both the real estate and many of the jobs they provide. This should be treated positively, not negatively.
Darryl Allen
Darryl Allen Feb 25, 2021 1:06PM ET
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Halting trades to protect the position of shorts is pure corruption
Brady Christiaens
Brady Christiaens Feb 25, 2021 8:39AM ET
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apes strong together
James Pattison
James Pattison Feb 25, 2021 7:43AM ET
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Look at the hreat journalisming of reuters... not once ask the questiom... why is it happening as you rush to blame “redditors.” Did reddit force hedge funds to take an huge and ober levered position? What about the massive number of “failure to deliver” on shares?? You are literally running to the aid of the rich when your real job is to protect the people... when wallstreet loses we socialize their loses... when mainstreet loses... well thats just too bad... get jourlanisming... just jourlanisming all over our faces... so sad...
Jose Mibaresh
Jose Mibaresh Feb 25, 2021 7:36AM ET
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Ban naked shorting and this won't happen.  To me, that's more irresponsible than anyone buying a stonk. because they like it.
Ben Ben Tan
Ben Ben Tan Feb 25, 2021 3:49AM ET
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please regulate the market. some nuts are going to lead us into another financial crisis.
Abdelraziq Abuaisha
Abdelraziq Abuaisha Feb 25, 2021 3:49AM ET
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No escape of the coming financial “collapse”, either nuts lead it or whoever else.
Gamer Paper
Gamer Paper Feb 25, 2021 3:49AM ET
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Yes the hedge funds. Pls regulate shorting above the free float should be banned. Thank you
James Pattison
James Pattison Feb 25, 2021 3:49AM ET
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Those nuts took a huge ober levered short position... who told them to do that...
Gcj Rentals
Gcj Rentals Feb 25, 2021 2:52AM ET
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they want this to see 1k....what kind of market cap would that be lol
 
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