- S&P 500 Index is on the verge of a major breakdown according to the weekly chart.
- Peculiar fundamentals are stacking up against the stock market bubble.
- GameStop GME dominates the headlines and the coronavirus spread remains a concern.
Whether you are an investor or not, you will have no doubt been aware of what started on Wall Street and spread throughout the global stock market in new phenomena which had been a game-changer in the battle of retail investors vs the big boys.
GameStop GME dominates the headlines as the hedge funds and retail traders go head to head.
This is where the focus will be for the week (s) ahead amongst some lesser compelling earnings and economic data along with what has become the norm in a life of coronavirus.
The SPX dropped 3.3% last week for its worst stretch since late Oct.
The index is now in the red for the month as ‘traditional’ investors move to the sidelines and standby, (chewing on popcorn), watching the spectacle play out around the world’s stock markets.
Erratic trading in stocks is never a good thing, on the whole, for the benchmarks prefer a conventional and dependable flow in a standard risk-on environment.
Last week, GameStop (GME ) and AMCEntertainment (AMC ) stirred up worries about market stability and potential manipulation at a time when new variants of COVID-19 and stumbles with vaccine distributions had also been weighing.
The market’s benchmark finished January at 3,714.24, down from last Friday’s closing level of 3,841.47 and marking a 1.1% drop from where it ended 2020.
Indeed, the GameStop (GME ) phenomena probably need little introduction nor explanation.
After all, when a stock rallies from $17 to nearly $500 over a number of day’s, everyone, including your taxi driver, is talking about it.
The GameStop rally came after investors saw glimmers of hope for the company this month when the chain changed the makeup of its board of directors.
However, the stock got its big kick when Reddit’s r/wallstreetbets community fawned over a Nov. 16 letter from Cohen to the GameStop board he would later join.
The stock was suddenly up more than 2,000% on the back of a 134% jump on Wednesday alone. By late Thursday morning, GameStop shares had fallen 63% to $126.
This occurred after some brokers imposed trading limits on the stock as the frenzy put enormous pressures brokerages such as Robinhood that have been attempting to keep up.
The stock later recovered but closed at $193.60 — a 44% loss.
On Friday, the stock rallied again and soared nearly 68%.
The stock made a high $413.98 to close at $325 as the amateur day traders on the likes of Reddit’s r/wallstreetbets community.
The community is growing and now has 6 million members.
It continues to bet against the short-sellers as they encourage each other to pile into shares and call options, creating another massive short squeeze.
Moreover, institutional money has most probably started to flood in as well looking to take advantage of the trapped shorts in a market that still has plenty to go.
However, what is really compelling is that GameStop shares that have sold short have declined by just about 5 million over the last week, marking an 8% dip in the short interest.
This says that short sellers are mostly holding onto their bearish positions or they are being replaced by new hedge funds willing to bet against the stock.
“I keep hearing that ‘most of the GME shorts have covered’ — totally untrue,” said Ihor Dusaniwsky, S3 managing director of predictive analytics. “In actuality, the data shows that total net shares shorted hasn’t moved all that much.”
“While the ‘value shorts’ that were in GME earlier have been squeezed, most of the borrowed shares that were returned on the back of the buy to covers were shorted by new momentum shorts in the name,” Dusaniwsky added in an email for which CNBC has reported.
”GameStop remained the most-shorted name in the market as short interest as a percentage of shares available for trading stands at 113.31%, S3 said.”
Meanwhile, this hasn’t stopped with GameStop and the mania has gone global, “whipsawing stocks from Amsterdam to Sydney,” Bloomberg reported.
“In Europe, short-seller favourites including Unibail-Rodamco-Westfield jumped 20% or more. E-commerce giant Rakuten Inc. and baby-care goods maker Pigeon Corp. climbed at least 6.9% in Tokyo on Thursday.”