GameStop loses momentum but is the Reddit movement here to stay?
It has been a wild couple of weeks in stock market terms as a group of traders on the Reddit social media platform have wreaked havoc by targeting short sellers. At the time of writing, both Gamestop shares and the price of silver – another Reddit ‘target’ – were losing momentum.
There are two main questions for investors at this juncture. Is the Reddit hype a short-term phenomenon which will rapidly fizzle out? Or could concerted action by ordinary punters become a regular feature of market trading and is this activity a sign of a wider bubble across asset classes?
As we previously discussed, the action started with Texas-based computer games seller GameStop, targeted for a short squeeze by the ‘Wallstreetbets’ Reddit forum, whose sights were trained on hedge funds betting on further declines for the share price.
Since 21 January GameStop has traded as low as $40 and as high as $469 with several platforms including Robinhood introducing temporary trading restrictions on this and other Wallstreetbets targets like cinema operator AMC Entertainment and Blackberry.
There have been some limited signs of a similar phenomenon in the UK and Asia. As the table shows, heavily shorted UK stocks like Cineworld (CINE) and Pearson (PSON) have seen some signs of a bump in their share price since the GameStop phenomenon gathered steam, albeit to nothing like the same extent as has been seen on Wall Street.
What is apparent from the last few weeks is that there are an increasing number of people with the time and inclination to actively trade shares and other assets, with stock targets arranged via social media.
This raises the prospect of further volatility, even if GameStop and other stocks of its ilk will not be able to defy gravity indefinitely. It might be tempting to view this as top of the market behaviour, but for now these bubbles seem relatively contained, with limited risk of contagion into the market as a whole.