Peak GameStop?
GameStop’s volume and volatility were much lower this week than in the previous six days. This also applies to other heavily abbreviated names such as Bed Bath and Beyond, Express and AMC.
What is happening?
Chris Murphy, co-head of derivatives strategy at Susquehanna Financial Group, ticked off signs that the endgame may not be far away for GameStop: “More pits than calls have been traded lately. Outstanding interest in call options is much lower Decrease in volatility. There are signs that the Reddit streams are going elsewhere, like Silver. Those are definitely signs of a spike in GameStop. “
GameStop shares fell an additional 30% in premarket trading on Tuesday after losing 30% on Monday. The stock traded 37 million shares Monday, down from nearly 200 million on Jan. 22 and the lightest volume in seven days.
Much like the GameStop shorts they claim to have pushed, many in the Reddit community have already made money and are out. Some are ideologically committed but remain long. Others look for new opportunities, but Dan Egan, director of Behavioral Finance and Investing at Betterment, says it’s getting harder to rally the troops.
“The human brain craves stimulus from change,” he said on CNBC’s “ETF Edge” podcast. “One of the real challenges with this kind of thing is that they have to keep the attention to themselves by doing bigger and more unusual things. And that’s really hard. … have to go up. So you look at silver, other commodities, etc. “
The problem, of course, is that there is no investment committee – even the silver debate is splintered into groups for and against.
And that’s where the attention starts to get unfocused, Egan said: “A lot of people think this has been a huge change in the way the market works, that as long as a bulletin board or a community of people can draw attention to one specific stock. ., can they really move it, it will happen again. But it’s going to get harder because people will understand it’s a bit of a mania, a Ponzi plan. You have to get in at the right time. And go at the right time. away … And once you remove that ability to focus everyone on the same stock, the ability to push the price up goes down. “
Does a broken attention mean that the Reddit community’s impact will diminish, or can they rally around a new idea that sparks a large enough group to make an impact? Silver, assuming it was such a choice, may have been a very bad move.
Eric Balchunas, who covers ETFs for Bloomberg, noted in a tweet that the Silver ETF (SLV) had strong volume, but a disappointing price action: “$ SLV traded just over $ 7 billion today (as predicted), a monster amount and a third in total, but reluctant and far from $ GME last week. In the second half of the day, it almost ran out of steam … “
UBS ‘Art Cashin also noted that the same fervor for GameStop was absent with Silver: “Did we break the back of the short squeeze? Not quite clear yet. If continuing to sell in GameStop persists, it would indicate that it was broken. The partnership to pinch the shorts broke when they turned their attention to sliver. Where I don’t think they will be successful at all. ”
The lack of leadership remains a critical issue, Egan said, “I think they have some people you consider leaders who are not necessarily there to lead. They were accidental leaders. They are losing sense of FOMO, the Fear of missing out on something that has sort of happened. That’s a big incentive for bubbles, people who don’t want to regret participating in some kind of social event. So that’s going to happen. “
Finally, the intense attention the Reddit community has generated means that Wall Street is well aware of what they are doing, he added, “These bulletin boards are, for the most part, public and their ability to bring in and get a lot of people. That focus depends on them being public. But that also means you can be an analyst at a bank, and you can just as well read these message boards. So the ability to surprise professionals has diminished dramatically now that this happened once. “
What does it all mean? For Murphy, it means a likely return to the status quo ante: “The endgame is GME going back to a more realistic level.”
Note: Susquehanna Financial Group is a market maker in the securities of GME and SLV. SFG and / or its subsidiaries advantageously own 1% or more of the securities of GME.
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