GameStop ends up 7.3pct after wild swings, other 'meme stocks' soar

NEW YORK - GameStop ended 7.3 percent higher on Wednesday after wild gyrations in the resurgent rally that has vaulted shares of the video game retailer and other so-called meme stocks closer to the peaks of late January.

Shares of GameStop closed at $265 following turbulent trading that saw them rise by as much as 41 percent to a peak of $348.50, a move some analysts said was accelerated by bearish investors unwinding bets against the stock.

The rally put the company’s market capitalization at $18.48 billion, making it the biggest listing on the S&P 600 index of small-cap stocks. At their session high, GameStop shares were up 800 percent from last month's low but still 28 percent below their late January peak.

Traders exchanged almost $20 billion worth of GameStop shares, making it the Wall Street session's second most-traded company after Tesla and ahead of Apple.

Other stocks popular with retail investors in forums such as Reddit’s WallStreetBets also enjoyed outsized gains. Headphone maker Koss Corp soared more than 100 percent at one point and cinema operator AMC Entertainment jumped nearly 19 percent before erasing gains.

The moves drew cheers on WallStreetBets and other online forums and eyerolls from other market participants.

"You just have wild speculation .. They're guessing," said Phil Blancato, CEO of Ladenburg Thalmann Asset Management in New York. "I wouldn't touch it with a 10-foot pole right now."

Investors short GameStop shares have incurred over $1.3 billion in losses over the last couple of days, forcing some to abandon their positions and buy back the stock in a phenomenon known as a short squeeze, said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

Shorts have covered some 3 million shares over the last seven days, worth $742 million, the firm’s data showed.

"As GameStop keeps going up, we are going to continue to see short-covering as more shorts reach their maximum pain threshold and are forced out of their trades," Dusaniwsky said.

GameStop retains a legion of devout followers after a social media frenzy in January triggered a massive rally in which its shares surged more than 1,600 percent.

That spike triggered a short squeeze that shook hedge funds such as Melvin Capital.

But fuel for further short squeezes may be running out: About 20.5 percent of GameStop's share float is sold short, the lowest in at least three years, according to S3 data.

Market strategists have also said tens of billions of dollars from stimulus checks sent to Americans through U.S. President Joe Biden's coronavirus relief package could find their way into the stock market, including into the "meme stocks" promoted by retail traders online.

GameStop bulls also hope for a profit boost from the transition to e-commerce for the video game retailer, led by shareholder and Chewy.com co-founder Ryan Cohen, who is on the company's board. The company has said it would report earnings on March 23.

Denizens of WallStreetBets exhorted one another to hold on for more gains, while others lamented selling too early.

"Makes (me) physically sick I sold all 39 shares of GME at $120 at a loss cause I thought it wasn’t happening again," Reddit user TheKingTodo wrote.

Separately, on Wednesday, shares of U.S. gaming company Roblox Corp RBLX.N closed up 54.4 percent in its New York Stock Exchange trading debut on Wednesday, valuing the company at $45.2 billion.

-reuters-

'We love this stock': GameStop effect spreads as calls for probe build

The battle between small-time traders and hedge funds that has shaken US and European stock markets moved into Asia on Thursday, with surges in several Australian companies joining a list of social-media hyped moves that have cost financial institutions billions of dollars.

Heavily shorted Australian shares, including Webjet and Tassal Group, climbed more than 5% even as Sydney's benchmark ASX 200 index fell 2%.

In New York, GameStop, the video game chain at the heart of the slugfest between Wall Street and Main Street, added another 37% in early trading after a two-week, 1,700% surge that has hammered fund investors who were betting the stock would fall.

Driven by an army of individual traders who work through online brokerage apps like Robinhood.com and discuss stocks on anonymous social media messaging boards, the dramatic jump in the stock price of companies including GameStop, BlackBerry Ltd and AMC Corp drew more calls for regulatory scrutiny from commentators.

"The frenzy raises all sorts of questions with respect to possible market manipulation," said Michael Hewson, chief market analyst at retail broker CMC Markets UK.

"It is already illegal for institutions to coordinate in the manner currently being seen in moving prices on these stocks, raising questions about the legality of what is currently taking place right now on these forums."

The short squeeze - where traders have to abandon loss-making "short" bets on a stock falling because it has instead risen - also fueled a 2% slide in the benchmark S&P 500 on Wednesday as investors sold other assets to cover their losses.

Futures tracking the main New York index were down another 0.6% on Thursday.

Reddit discussion threads were again humming with chatter about the stocks on Thursday as membership of the trader-focused group WallStreetBets raced past 4 million.

In one discussion, thousands of participants responded "We love this stock" to a post that called for more buying of GameStop and cast retail traders as Iron Man against a hedge fund Thanos in a nod to the superhero movie "Avengers: Endgame".

BlackBerry and Nokia, however, slipped more than 5% in premarket trading after recording hefty gains this week and derivatives positioning pointed to a greater rise in the number of orders betting GameStop would fall.

"The idea that this is about hedge fund short-sellers transferring funds to a mass of ordinary retail buyers is a compelling story," said Paul Donovan, chief economist of UBS Global Wealth Management.

"But it is also a story that is unlikely to hold true beyond the brief period of the frenzy."

GAME ON

The war began last week when famed short seller Andrew Left of Citron Capital bet against GameStop and was met with a barrage of retail traders betting the other way. He said on Wednesday he had abandoned the bet.

Regarded by market professionals as "dumb money", the pack of traders, some of them former bankers working for themselves, have become an increasingly powerful force worth 20% of equity orders last year, data from Swiss bank UBS showed.

The only-way-is-up nature of stock markets over the past decade, fueled by a constant flow of newly created money from major central banks, has also made it less risky to bet on shares rising.

The US Federal Reserve kept those taps firmly open at its latest meeting on Wednesday.

This week's turmoil caught the attention of the White House, with President Joe Biden's economic team - including Treasury Secretary Janet Yellen on her first full day on the job on Wednesday - "monitoring the situation."

Massachusetts state regulator William Galvin called on NYSE to suspend trading in GameStop for 30 days to allow a cooling-off period.

"The prospect of intervention here is clearly high, but this will just galvanize the (WallStreetBets) community as it just brings home the feeling of inequality in financial markets," said Chris Weston, head of research at broker Pepperstone in Melbourne.

"It's fine to prop up zombie companies through Fed actions but if retail follows a path that greatly distorts asset prices by targeting short sellers, then this gets shut down."

Reddit said on Wednesday that it had not been contacted by authorities over the surges.

-reuters-