What in the world is going on in the stock market? Millions of retail investors have formed an alliance and have taken on short hedge funds. Who would of thought that we would see the day that hedge funds that are specifically designed to short stocks would run into a short squeeze from an online trading group? This is what’s happening right now with GameStop (NYSE: GME) (click here for the definition of short selling). For decades these short hedge funds have targeted companies that appear to have weak fundamentals and no real prospects for growth which is why they targeted GameStop. The brick-and- mortar electronics retailer inherent business model has been challenged over the years due to the rise of digital gaming.
So, an obvious short, right? Fundamentally yes, but what has happened to the stock of GameStop is unprecedented. Never before has a unified online retail investor/day trading group targeted a company in the way that GameStop has been targeted while also targeting hedge funds that short sell companies. GameStop soared to a high of $483 per share last week while not that long ago GameStop was trading in the teens. In the month of January have witnessed unheard of returns with not only GameStop, but also with AMC Entertainment Holdings (NYSE: AMC) and department store Macy’s (NYSE:M) just to name a few. Pundits now are speaking to how this new “retail investor/day trading” strategy and cult like initiative is here to stay. Talk about disrupting the markets and impacting the short sellers’ model forever! I too believe this here to stay. That said, I also believe regulation will come forward to address the unimaginable volatility that these targeted stocks are experiencing. $200 dollar +/- price swings is happening with GameStop (see chart below) on an intraday basis that have even made the most experienced day and swing traders scratch their heads on how to trade the stock.
In closing, this is pure speculation and has no fundamental basis. Everyone knows GameStop is not worth $300-$483 per share not even close. To that end, this is a reminder of how stocks and stock prices can totally be disconnected to the fundamental value of a company. Please be careful trading these kinds of situations and it’s probably best to stay away!
Good luck to all 🙂