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Wall Street gears up for second bout against Reddit traders

Published 01/31/2021, 05:33 PM
Updated 01/31/2021, 09:45 PM
© Reuters. FILE PHOTO: New York Stock Exchange opens during COVID-19

By Svea Herbst-Bayliss and Sujata Rao

BOSTON/LONDON (Reuters) - Wall Street is gearing up for another week of market mayhem, with signs that the retail frenzy that pumped up the stock prices of the likes of GameStop Corp (NYSE:GME) and AMC Entertainment (NYSE:AMC) Holdings Inc is spreading to other assets.

Some of Wall Street's largest hedge funds are still licking their wounds after retail traders sought to drive up the prices of stocks that were heavily bet against, resulting in large losses for major investors.

Melvin Capital, a hedge fund at the center of the GameStop drama, lost 53% in January but received commitments for fresh cash from investors in the last days of the month, Reuters reported on Sunday.

Melvin ended January with more than $8 billion in assets after having started the year with roughly $12.5 billion in assets, according to a person familiar with the matter.

On Friday, Citron Research's Andrew Left, who spent two decades building his brand as one of the world’s best-known short-sellers, turned his back on publicly detailing companies' shortcomings, following an intense backlash against him and others who said video retailer GameStop's stock was not worth its price.

"We saw the might of a new investor base, in terms of their ability to shape not just the fortunes of an individual stock but the fortunes of a large market segment like the Russell 2000," said Sunil Krishnan, head of multi-asset funds at Aviva (LON:AV) Investors.

Amid the wild price fluctuations, the amount of position covering last week by U.S. hedge funds, buying and selling, was the highest since the financial crisis more than a decade ago, according to an analysis by Goldman Sachs Group Inc (NYSE:GS). Nevertheless, their market exposure to stocks is still near record levels, the investment bank warned.

"According to Goldman Sachs Prime Services, this week represented the largest active hedge fund de-grossing since February 2009. Funds in their coverage sold long positions and covered shorts in every sector," the investment bank wrote in a note late on Friday.

"Despite this active deleveraging, hedge fund net and gross exposures on a mark-to-market basis both remain close to the highest levels on record, indicating ongoing risk of positioning-driven sell-offs."

Signs are mounting that retail traders who moved the market last week are setting their sights further afield than just U.S. stocks.

On Thursday and Friday, the price of silver rallied, taking gains to around 10% since messages began to circulate on social media platform Reddit urging retail investors to pile into the market and drive up prices. The price of gold has also rallied.

Such market moves have brought into focus the growing heft that retail traders have on financial markets, which had been dominated in the past by larger institutions.

"What's been surprising in the last few months has been the scale of retail participation has started to move the dials," said Paul O'Connor, head of the multi-asset team at Janus Henderson in London.

© Reuters. FILE PHOTO: New York Stock Exchange opens during COVID-19

"If you looked at that data a couple of months ago, you can see it's been happening. It's not like these guys woke up last week," O'Connor added.

Latest comments

Only way to twart the Reddit and Robinhood buyers are for Hedge funds to gang up and sell in the US$ billions.
So market manipulation has become fashionable. SEC I hope you are getting all this.
Maybe SEC officers are amongst the millions of Reddit buyers? So how?
Every article should just be titled “Retail crowdfunds a giant middle finger to the system they feel leaves them behind”
They could be using multi line tactics parallel the Australia's ban, content charges, digital tax., coordinated account canceling, cyber attacks plus roll out of alternative products with disruptive diiferentiated functionality etc....
it is hardly over, Tesla army revenge on option whale Softbank's Son has not been done yet! So many rounds coming! They are figuring a way to burn Google, FB, AMZN, and Apple soon!
Why burn? What did FAANG do to your sister and mom?
In the mean time... i cant wait to buy another 1000 shares of AMC... man i love that stonk
Umm not a somgle article about how or why robinhood can limit the purchases of a stock??? Free market my b’s D and A...
Obviously you tend not to read fine print of what you sign.
Heading seems reversed. Last week was Reddit against WS round #1. . This week is Reddit vs WS round #2
This activity could accelerate into a crash ..
Let it
Who caused the crash? The people buying shares of stock? No... this is wall streets greed... they will fall on their own kanife... but somce they paid yellen a cool900k she will bail them out worh twx paher money...
Funny how investing in a stock just became a bad thing. GME is not worth it's price? Well... have you taken a look at... oh i don't know... the stock market? Is it dangerous to invest in the stock market because of the investors reddit or not? ... If you can't plan and menage your investments strategy and portfolio around what is happening, you should not even be investing in the stock market at all.
since they locked the country down and couldn't work or watch my movies at AMC ...I decided to buy stock in things I like....GME is my long term hold.. I like gamestop...don't worry about what I spend my money on Wallstreet never cared before when I lost money....
Why not stop reddit news site ? Stop wsb tweet and etc ? Yall stop trump from social media!! So dont sft like banks and big money wanna dtop these traders lmao. Crooks , lies and corruptions . God is watching u all, do the right thing !
god ain't real tho
OMG, I'm so excited about this. I'm definitely going to get in on the fun this week. Love hearing those hedge funds squeal!!
looks like playing with the sentiments of retailers..
its a lie...the puppet masters are splitting the market... how fake.K. some win. some lose...nothing to do with reddit and WSB...just a cover up story fake news lie
Love it keep burying them crooks
If retailers are buying, why is the market tanking?
lol...because retailers don't sell index futures in order to give appearance market tanking--attempting to induce us small fries to cash out ASAP
They got angry the fed didnt come out and say they would get cheap and easy money for many more years to come. Instead they said nothings changed.
What options do people have to yield money that doesnt take decades to reap what they sow with the knowledge a crisis appeara every 5 to 10 years where wallstreet and employers tell them they have to continue to keep their lifestyles depressed? Most people under 30 have lived through nothing but crisis and extremely diminished opportunities while watching the world around them get richer. Of course this was going to happen.
To the moon 🌛 🚀
yes brother!
Apparently, looking 6 months ahead, the future isn't too bright. I didn't think the first 20% correction of '21 was coming for another month. Buy in short and don't let go!
How many times do we have to teach you this lesson old man!
What lesson? The market us over priced. A selloff always needs an excuse. It'll be blamed on Robin Hood. Let it burn down! I'll make money going down and coming back!!
The bad thing is these retail investors may hurt the rest of the market which if they do makes them just like the banks who did the same in 08
Media would blame retail. Truth is that cabal rigged whole system for their benefit. Cabal is going to be expose by humanity.
Way bigger. Elon just tweeted gamestonk to his 44mill followers and the Reddit wsb army. And look what happend.
We are ready
Retail traders have learned to unite and ignore the fake news that media has provided. War against the Wall Street Elites!
Short sellers are not investors.
They're going to press KODK hard this week. Price will skyrocket, and then be justified when it's announced Biden admin has asked them to help ramp up vaccine supplies
Looks like that already happened. You a bag holder?
The title explains the movement “AGAINST” retail traders. The language every day from interviews and analysts is how to suppress and regulate the people. This will grow because your own language is fanning the flames
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