VIDEO retailer GameStop Corp shares more than halved in value on Tuesday and silver prices retreated as the Reddit-driven trading frenzy that roiled stock and commodity markets appeared to fizzle, at least for now.
The videogame retailer’s shares whose wild gyrations have made or lost billions of dollars for hedge funds and other investors in recent weeks closed down 60% at US$90. They are now worth less than a fifth of their high of US$483 last week.
Posters on the popular Reddit forum WallStreetBets which was instrumental in fuelling the rally bemoaned the fall. “Our darkest hour,” read one post here by user name kigfik who said they were still holding the stock. Another user, Cinther, posted that they bought at US$390 and “lost so much that I don’t even care anymore” but were still holding.
“The rally is likely over (since) the short positions are pretty well taken care of,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.
“That’s the game you play when you do this thing. It can work for a while until it stops working and when it stops working, it reverses pretty quickly.”
Short sellers saw paper gains of US$3.39 bil during Tuesday’s session, according to S3 Partners. Year-to-date realised and unrealised losses for shorts recently stood at US$9.2 bil.
“We have had a lot of shorts take their losses and walk away from the trade,” said Ihor Dusaniwsky, S3’s managing director of predictive analytics.
Spot silver prices which became an alternative focus in the battle between small traders and Wall Street hedge funds last week, fell more than 8% after hitting an eight-year high on Monday. The main silver ETF was down 8.3%.
The retail frenzy in silver has left some dealers scrambling for bars and coins to meet demand.
Analysts said the silver pullback may show the limits of small investors’ impact in a large and complicated market.
Online broker Robinhood, on whose platform much of the buying and selling has taken place, raised trading limits on GameStop Corp, AMC and other stocks, according to an update on its website on Tuesday.
‘Bizarre situations’
Analysts predicted that the market frenzy which has drawn the attention of regulators and politicians was likely to fade and said it was just a question of how soon.
“This is a pretty narrow strategy that likely creates some bizarre situations like GameStop and AMC but it’s not broad enough to change how institutional investors are going to invest,” said Rick Meckler, a partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.
“The strength of the move was so severe that it really opened up people’s eyes to the power of social media in the investment world. But having seen it and how short-term the nature of it is, I think it’ll lose its surprise.”
Other so-called meme stocks caught up in the Reddit rally also sold off. AMC Entertainment Holdings Inc and Koss Corp each dropped by more than 40%, Express Inc and Naked Brand Group Ltd lost about a third of their value, while BlackBerry Ltd and Bed Bath & Beyond Inc showed double-digit percentage losses. Nokia’s US-listed shares fell 7%.
With hedge funds at the center of the market drama, the GameStop saga is likely to expedite a regulatory review of the ever-larger role played by non-bank firms in the financial markets, regulatory experts said.
Melvin Capital, one of the biggest funds betting on a drop in GameStop’s share price, lost 53% in January. Other funds like billionaire investor Steven Cohen’s Point72 Asset Management lost nearly 9%, investors in the funds said. – Feb 3, 2021
