The rally of GameStop and other meme stocks appears to have stopped. However, it’s still too early for short sellers to celebrate, as their recent gains have turned into losses in just two trading sessions.
- The recent rally of GameStop and other meme stocks, sparked by Keith “Roaring Kitty” Gill’s return to social media, led to significant gains followed by sharp declines, illustrating retail sentiment’s ongoing volatility and influence.
- Short sellers faced substantial mark-to-market losses during the rally, with GameStop short sellers losing up to $2.22 billion. This highlights the high-risk environment and the rapid shift from gains to losses in just two trading sessions.
- Despite the market fluctuations, major shareholders like GameStop’s CEO Ryan Cohen, who holds a significant stake in the company, have not sold their shares, indicating continued confidence and support from critical investors amidst the turmoil.
After soaring some 180% in just two trading sessions, shares in the video game retailer (NYSE: GME) have plummeted 43% since the high reached on May 14.
The rally ignited by Keith “Roaring Kitty” Gill’s comeback to social network X, who was probably the most significant influencer behind the massive short squeeze of GameStop and other meme stocks in 2021, seems to have lost steam and come to an end as the trading week ends.
Not only did GameStop stock benefit from Gill’s return, but Other so-called meme stocks like movie theater chain AMC Entertainment (NASDAQ: AMC), Beyond (NASDAQ: BYON) (formerly Overstock.com, the company that bought the brand from bankrupt Bed Bath & Beyond), headphones manufacturer Koss Corp (NASDAQ: KOSS), and other well-known names like BlackBerry (NASDAQ: BB) and Tupperware (NASDAQ: TUP), took a ride as bullish sentiment around meme stocks and rallied strong.
GameStop Short Sellers Squeezed Again
A rally of this level hasn’t been seen in at least three years when short squeezes of meme stocks first appeared on the stock market. GameStop stock, for example, was trading close to the 2022 timeframe, putting virtually all of the losses over the last two years behind it.
This rally was made possible mainly by two factors. One, the super buying pressure triggered by the feeling that 2021 was back with Roaring Kitty making an appearance for the first time since 2021, and in conjunction with short sellers being squeezed by the sudden bullishness, since GameStop and other meme stocks also share a short solid interest, still.
Data from S3 Partners short interest analyst Ihor Dusaniwski pointed out that at the height of the rally, GameStop’s short sellers lost as much as $2.22 billion in mark-to-market losses from May 13 and 14 trading sessions. Short interest reached $1.92 billion, with 63.2 million shares shorted, corresponding to 23.68% of GameStop’s float. To give you an idea, short sellers were up $392 million between January and April.
Even though GameStop stock short sellers are negative this year, with shares trading above $30, new short positions have been created. Buying pressure decreased as it became impossible for retail investors to sustain such a price level. With out-of-the-money options from the 14th expiring (yes, they all became in-the-money as GME jumped triple digits as soon as the market opened), there was a lack of options in the market, and the rally lost steam. Another important detail is that GameStop stock was halted by volatility more than 30 times in two trading sessions.
Have GameStop Shareholders Given Up?
It might be hasty for anyone to say that GameStop shareholders have given up.
To start with, GameStop’s largest single shareholder is its CEO, Ryan Cohen, who owns about 12% of the company’s shares. Since Ryan bought his first stake in the company in 2020, he hasn’t sold any shares. On the contrary, he kept buying until the middle of last year. At that time, GameStop’s current CEO bought 443,842 shares at an average price of $22.57. By mid-April this year, that stake had plummeted by 54%.
In the trading session on May 14, Ryan’s latest purchase appreciated by as much as 160%. Again, Ryan Cohen didn’t sell a single share.
This is all the more surprising considering the initial price Ryan Cohen paid for most of his GME stake in 2020, at an average price of $3.8 per share (post-split). At the height of the trading session on the 14th, Cohen’s initial stake appreciated by more than 1100%, and he again didn’t sell a single share.
So the question remains: If the company’s largest shareholder, who even became its CEO and is still idolized by his loyal shareholders, didn’t sell a single share even though GameStopg sharply over the last few years and has seen all its profits from 2021 decimated, why did retail shareholders give up on the stock, has been fallin’ too?
The Bottom Line
Keith “Roaring Kitty” Gill symbolizes retail investors’ resistance to institutional investors and short sellers aiming to bet against the company’s fundamentals, betting that the company is overvalued and may go bankrupt.
I believe that Gill’s appearance is renewing a movement that has been dormant for the last few years due to dozens of factors, including macroeconomic ones, which currently show signs of once again conspiring to make the market more euphoric and more tolerant of risk.
If we consider 2024, GameSotp short sellers are actually at a loss. The nearly $400 million in profits made between January and April disappeared in just two trading sessions, with only Keith Gill dropping a few tweets with his Roaring Kitty profile on X. I wonder what would cause a public appearance of Gill talking about stocks again, or more specifically, GameStop stock. Indeed, volatility must remain on the cards for GameStop, something that since 2021 has been a constant and probably in the near and distant future.
(Disclaimers: this is not investment advice. The author may be one or more of the stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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