Photographer: David Paul Morris / Bloomberg
Photographer: David Paul Morris / Bloomberg
GameStop Corp.’s spectacular rally took place on Tuesday and later, attracting other recent favorites of Reddit speculators, after the rising investors appeared to cover their positions and the trading volume decreased.
Shares of the video game retailer fell 28% to $ 162 at 4:03 a.m. in New York premarket trading. This reduced its advance to 760%. AMC Entertainment Holdings Inc. it fell 14% from the last close in the US.
GameStop crashed for the second time in three sessions, as trading volume slowed to about a third of the last five sessions, after last week’s sharp gains. The decline occurred as short-term interest fell to 53% of available shares, from over 140% just last month, according to data provided by financial analysis firm S3 Partners.
Read more: GameStop Short Interest collapses into a sign covered by traders
“Even if the short open interest rate remains solid, the pace of blurring could prevent another major upward movement,” said Ipek Ozkardeskaya, a senior analyst at Swissquote, in written comments. “On the other hand, if it were short on GameStop stocks, it would need very strong nerves, which would prevent the stock from falling by more than necessary.”
Restrictions on the value of shares that investors can buy using the popular trading app Robinhood Markets Inc., which probably kept retailers at bay. The platform loosened restrictions Monday afternoon to allow users to buy a limit of 20 GameStop shares. This exceeded the maximum limit of an action before the market opened.
Short seller reaction
The lower number of shares sold short could also be a blow to the daily traders’ thesis that a higher stock price would only lead to more gains, as hedge funds betting against the Grapevine, Texas, company they should cover their shorts.
The backlash against short sellers, including Citron Research, has been a key rallying point for retailers who use Reddit to communicate their bets. The craze has spread to companies like AMC Entertainment, which saw record volatility as trading volumes rose last week.
“The recent rally of all these names had all the symptoms and similarities with a great inefficiency created by excessive short-circuiting compared to the free flow of companies and excess liquidity,” said Alberto Tocchio, portfolio manager at Kairos Partners. “The growth of the Reddit factor is something that will be with us in the future, it is an additional factor that all hedge fund managers should face.”
– With the assistance of Ksenia Galouchko
(Updates with US premarket trading)