The meteoric rise in the price of GameStop shares is called short by most, but that is not the case, says an expert in short interest and the market.
Why does it matter: This could mean that if and when the short press occurs, the GameStop price could rise significantly higher than its current levels.
What happens: Short sellers piled up in GameStop as a result of its meteoric rise in stock prices, not the other way around, said for Axios Ihor Dusaniwsky, director of predictive analytics at S3 Partners.
- In the last year, the value of shortened shares has increased by 12%, while the total dollars at risk have increased by 1,900%, according to S3 data.
- This is a sign that big bets come from hedge funds and institutional investors, which means that the shortening has not even begun.
How it works: In a typical short press, the missing sellers sold the shares and “rented” shares with the intention of buying them after the share price fell. But they are “squeezed” if the price rises too much and are forced to leave the transaction by buying the shares at a higher price.
- This helps increase the value of the shares, as short sellers join the momentum, pushing the price higher.
- But with GameStop, every time a short seller leaves the market and buys shares, new short sellers come to replace them, keeping the same downward pressure on the price and, in fact, the short interest rate increases.
What does it mean: “That tells me that what moves the market are long buyers. This is not a short hedging rally,” Dusaniwsky said.
- “If it were, I would see the stock shorten by falling sharply. For this type of price move, I should see that short interest rates will be eliminated.”
- “One way I can see the short interest rate is not erased, because the stock loan rate is higher and higher.
- “That means shorts don’t go online.”