Making sense of the markets this week: February 8, 2021
Redditors vs Wall Street: Act II
Last week, the news headlines and this space were dominated by the investing enthusiasts who gather online at Reddit and their attack on hedge funds. Redditors targeted funds that were short-selling (and would profit if stock prices went down) by driving up the prices of selected stocks to alarming levels—GameStop (GME), BlackBerry (BB), Bed Bath and Beyond (BBBY), and others.
At the height of their battle, the army of Redditors marched GameStop to $468 per share. This week, the stock price fell by almost 90% to below $55.
Similarly, from recent highs BlackBerry fell by 50%. Bed Bath & Beyond fell by 50%. AMC fell by over 60%. Prices on the Redditors’ collection of short squeezes continue to fall on Thursday, Feb. 4, as I write this post.
Here’s a roundup of Redditor short squeeze targets from Twitter…
So, is it game over for the Redditors’ movement? For those who bought at the top or near the top—who will they sell to? Many will be left holding the bag. That GameStop stock might only be worth $10 or $20 in the end. There will be some deep losses.
No one knows for sure as to what is going on behind the scenes, but I’d guess that the Redditor retail investors are being played by the professional traders and hedge funds that are still in the game. They live for this kind of volatility, and they have the trading tools to see what’s going on before it happens.
Redditors have to play this game of poker showing all of their cards, while professional traders and hedge funds get to keep their cards close to their chest. It’s not a fair fight. I am not on the side of “the man” (hedge funds) but I would guess that they will eat those Redditors on the way down, on the way up, back on the way up—and, well, you get the picture.
Contacts who are more connected to the hedge-fund and professional-trader industry suggest to me that the above is very likely. Many of the pros have profited from the volatility and are more than ready to play the game again.