It’s baaaack. Part of me feels like 2021 has been an endless cycle of the same stories resurfacing. GameStop, inflation, crypto… Well, we’re at the top of the order now, and guess what? The short squeeze is back.
You’re probably familiar with the story already, but bear with me. Back in January, GameStop Corp. (NYSE: GME) was the talk of the nation and the target of a massive short squeeze.
Everyday folks with zero interest in the stock market were following the story intently.
In case you weren’t paying attention, somehow, we might as well do a quick recap:
GameStop, along with other heavily shorted stocks like AMC Entertainment Holdings Inc. (NYSE: AMC) — also in another short squeeze this week — were targeted by a mysterious band of rebel retail traders from a Reddit group, WallStreetBets.
Now there are a lot of questions as to who originally engineered the trade, and it’s likely that someone had insider information. Regardless of its origins, it was an impressive strategy fueled by social media, message boards and memes.
The short squeeze was conducted on such a massive scale that hedge funds went bankrupt and Robinhood, the supposed “people’s trading app,” actually blocked retail traders from buying some stocks with high short interest… Don’t even get me started on that one.
The “end” — not really — of the GME saga came in a congressional hearing when Keith Gill, AKA “Roaring Kitty,” was grilled for initiating the short squeeze, despite being a licensed securities professional.
And now we find ourselves here… talking about GameStop once again.
The mainstream media finally took a break from its endless crypto-pushing as this was one of the top stories on CNBC:
And just like that, the short squeeze is back.
Though, to be fair, it’s hard to think it will be of the same magnitude it was… After all, GameStop shares soared over 2,000% during the initial short squeeze circus, and AMC’s rose over 800%.
And now that the meme stonks are again seeing a lot of short interest, the Reddit squad is ready to strike again.
Wednesday, GameStop went up as much as 18%. AMC neared a 20% gain multiple times and Blink Charging (Nasdaq: BLNK) rose 8%.
But are we really surprised that the short squeeze is back in play? Not if you watch money manager positioning through the Commodity Futures Trading Commission (CFTC).
Hedge funds have been buying downside protection on small-cap stocks (via E-mini Russell 2000 Futures) all the way down to the bottom.
And in fact, they bought so much, they’re more than twice as short as any time over the past year.
Source: CFTC, Seawolf Research
And the best — or worst — part about it is that hedge funds have begun to crowd into the same trades as before…
Short interest in Reddit favorites GameStop and AMC is well over 20%, and big pandemic losers like Children’s Place Inc. (Nasdaq: PLCE) and Academy Sports & Outdoors Inc. (Nasdaq: ASO) are even higher…
Those last two in particular could prove especially dangerous, as both have incredibly easy annual comparisons, and are largely now in good financial shape with positive outlooks.
That is clearly being misunderstood by the market.
Because when the last short sale goes through and we’re left with nothing but buyers, the shorts have to cover.
And we saw how that worked out last time… Will history repeat itself now that the short squeeze is back? It usually does.
All the best,
P.S. Everyone has heard all about GameStop and its sudden, meteoric rise and 4,200% returns amid a massive short squeeze.
But what most people probably haven’t heard is that it’s not the only stock getting squeezed!
Wall Street doesn’t want everyday traders to know about these massive moves because the big firms lose money whenever short squeezes happen.
Mastermind trader and Forbes contributor Adam Sarhan is pulling the curtain back to reveal how anyone can take advantage of these trades — every single week!