Photographer: David Paul Morris / Bloomberg
Photographer: David Paul Morris / Bloomberg
GameStop Corp.’s spectacular rally. on Tuesday, pulling other recent favorites of Reddit speculators down as bearish investors appeared to be hedging their positions and trading volume shrank.
Shares of the video game retailer fell 28% to $ 162 at 4:03 a.m. in New York premarket trading. That reduced his advance to 760% since the beginning of the year. AMC Entertainment Holdings Inc. lost 14% from the last US closing price.
GameStop plummeted for the second time in three sessions on Monday as trading volume fell to about a third of the number in the past five sessions after last week’s surge. The drop came as short-term interest rates plummeted to 53% of available stocks, from more than 140% last month, according to data from financial analysis firm S3 Partners.
Read more: GameStop Short Interest plummets into a mark traders cover
“Even if open short rates remain solid, the diminishing momentum may prevent another major upward move,” Ipek Ozkardeskaya, a senior analyst at Swissquote, said in writing. “On the other hand, going short on GameStop stocks would require very solid nerves, keeping the stock from falling more than necessary.”
Restrictions on the number of shares investors can buy with the popular trading app Robinhood Markets Inc. probably kept retailers at bay. The platform eased restrictions on Monday afternoon, allowing users to buy a limit of 20 GameStop shares. That is a maximum of one share before the market opened.
Short-seller recoil
The lower number of shares sold could also be a blow to the daily traders’ contention that a higher share price would only result in more profits, as hedge funds betting against Texas-based company Grapevine should cover their shorts.
Resistance to short sellers, including Citron Research, has been an important gathering point for retailers using Reddit to communicate their bets. The mania spread to companies like AMC Entertainment, which saw record volatility last week when trading volumes soared.
“The recent rally of all those names had all the symptoms and similarities with a major inefficiency caused by excessive shorting compared to the free float of companies and excessive liquidity,” said Alberto Tocchio, a portfolio manager at Kairos Partners. “The rise of the Reddit factor is something we’ll see in the future, it’s an additional factor that all hedge fund managers have to deal with.”
– With the help of Ksenia Galouchko
(Updates with US premarket trading)