GameStop Corp.’s spectacular rally unwound further Tuesday, pulling other recent favorites of Reddit speculators down with it, after bearish investors appeared to cover their positions and trading volume shriveled.
Shares of the video-game retailer fell 23% to $172.20 at 5:25 a.m. in New York premarket trading. That trimmed its year-to-date advance to 814% and meant the stock has lost about two-thirds of its value since peaking at $483 on Thursday. Among others recently favored by the Reddit community, AMC Entertainment Holdings Inc. slid 23%, while Express Inc. declined 20%.
GameStop is tumbling for a third day in four after Monday’s trading volume slowed to about a third the amount of the previous five sessions. The declines come as short interest has plunged to 53% of the available shares, from more than 140% just last month, according to data from financial analytics firm S3 Partners.
READ: GameStop Short Interest Plummets in a Sign Traders Are Covering
“It looks like the unwind of the short squeeze, where prices will start to reflect economic reality again,” said Maarten Geerdink, head of European equities at NN Investment Partners.
The latest drop comes despite a loosening of restrictions on the amount of shares investors can buy using Robinhood Markets Inc. On Monday afternoon, the popular trading app started allowing users to purchase up to 20 shares of GameStop, up from a cap of one before the market opened.
Short-Seller Backlash
The lower number of shares sold short could also deal a blow to day traders’ thesis that a higher stock price would only result in more gains as hedge funds who bet against the Grapevine, Texas-based company would need to cover their shorts.
Backlash against short-sellers including Citron Research had been a key rallying point for retail traders using Reddit to communicate about their bets. The mania spread to companies like AMC Entertainment, which saw record volatility as trading volumes soared last week.
“The recent rally in all those names had all the symptoms and similarities to a great inefficiency created by excess shorting compared to the free float of companies and excess liquidity,” said Alberto Tocchio, a portfolio manager at Kairos Partners. “The rise of the Reddit factor is something that is going to be with us in the future, it’s an additional factor that all hedge fund managers should cope with.”
— With assistance by Ksenia Galouchko, and Albertina Torsoli
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February 02, 2021 at 03:39PM
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