GameStop mania deflates, silver surge never happens
WASHINGTON – My ability to write financial columns withered away last week, a little like Lenin’s State never actually did. Which is why I’m back Sunday trying to make sense out of all the pieces. Let’s see. We watched as the Redditors’ GameStop mania deflated spectacularly, proving either that those eager Redditors didn’t “hold the line” after all. Or the Wall Street bigwigs got their revenge by finding fresh cash to short GameStop (NYSE: GME) again. Meanwhile, thus far at least, that allegedly big, incoming “silver surge” short squeeze appears to have fizzled. For now.
Let’s take a quick look back at what did and didn’t happen during the first full trading week of February and see if we can learn anything at all from this theater of the absurd production.
GameStop mania deflates, shares soar and fall back to Earth
It was barely two weeks ago that the Redditors began their assault on GME’s institutional short sellers. Their GameStop mania assault had actually begun, quietly, sometime back in Spring 2020 just as the COVID-19 pandemic and largely ineffective lockdown regime diverted attention while also crashing the stock market in a massively wicked selloff.
But the selloff began to gather a bit more steam in the Fall of that year, culminating in a massive organized short squeeze by disgusted Redditors bent on revenge against the rich.
By late January 2021, GME shares had soared from a late March low of $2.57 per share to an astronomical peak of $483 per share. Reddit’s proletarian army of small fry day traders (and very likely some bigwigs who hitched a ride and made the short squeeze way worse) succeeded in virtually wiping out at least one major hedge fund. Additionally, they caused heartburn for a few other funds and fat-cat investors accustomed to winning gambits like these. This proved a real shocker to them.
The stock that fell to Earth
But the euphoria of the serfs indulging themselves in GameStop mania didn’t last very long. The bottom quickly fell out for that gambit.
We found more details Thursday via an unlinked Reuters report appearing on my brokerage’s trading site.
“The slide in shares of GameStop Corp and other recent favorites of retail investors deepened on Thursday, while U.S. Treasury Secretary Janet Yellen said she needed to ‘understand deeply’ the trading frenzy that has gripped Wall Street.
“A swarm of buying by amateur traders over the past two weeks sparked big moves in shares of companies that hedge funds had bet against in a confrontation some framed as a battle between Wall Street and Main Street.”
More details on the decline and fall of GameStop shares
The Reuters report continued.
“Many of those stocks [GameStop, AMC, etc.] have notched sharp declines this week: GameStop shares were down 37% in mid-day trading at $58.39 versus a peak of $483 a week ago, while AMC’s [AMC theater chain, NYSE: AMC] value has more than halved after two weeks of the battle that has pitched amateur traders against Wall Street institutions.
“Meanwhile, directors and executives at Koss Corp, another stock caught up in the trading blitz, sold at least $44 million in stock this week, according to CNBC. Koss shares were recently down 21%.
“Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh, said retail investors burnt in the wild gyrations of the past two weeks were now likely to be more cautious in bidding up shares of companies with a high short interest.
“‘(Retail investors) can see that this is a roller-coaster ride and not a one-way trip up, and that’s probably given them a little more pause before pushing the buy button.’”
Holding the line? Or learning how to trade a short squeeze?
While Redditors urged one another to hang onto their GME shares until every last short-selling fund and evildoer was wiped out, some more prudent heads obviously chose to accept the gift of a massive capital gain and worry about the IRS consequences later.
“On WallStreetBets, the Reddit forum at the center of the squeeze that has hurt hedge funds and other ‘short’ sellers, some denizens urged each other to hold the line and not sell GameStop, while others expressed frustration at the stock’s big drop.
“‘It’s funny how everyone on here is telling others to hold but stock keeps falling meaning y’all are actually selling,’ said a user with the handle the_undergroundman. ‘You’re getting played by your own brethren.’”
Yeah, dudes. Well, welcome to the Wall Street Casino. Some quick learners in this mob, that’s for sure.
After the GameStop mania, what happened to the silver surge?
GameStop actually caught a bid Friday, kicking those shares back up So what’s next for this merry band of righteous plebeians? It was supposed to be the Great Silver Surge, a trade encompassing the metal, the futures and silver ETFs like SLV. That short squeeze was allegedly set to begin last Monday. Which it briefly did, lifting the price of the metal up to around $30 per ounce in early Monday trading. But the metal and the biggest silver ETF (NYSE: SLV) promptly fell back into the $24-25 range and remained there on declining volume. Some silver surge. (PS, I don’t follow futures, normally, so no quote there.)
Back to Reuters:
“Many analysts think the [GME] squeeze is probably over and broader market attention has begun to turn to the possible fallout.
“‘The retail frenzy that provided an unusual distraction over the last couple of weeks appears to have lost momentum,’ said Craig Erlam, market analyst at OANDA Europe.
“‘A comeback tour may be planned at some point in the not-too-distant future but whether it will be as effective, we’ll have to wait and see.’”
I’m still waiting. For silver to soar to $1,000 per ounce or more. Just like the Reddit guys promise it will. I was already in a bit of SLV a few months back as a partial hedge against a market crash. So continuing to hold shouldn’t be too painful.
But, as for that $1,000 target, I won’t hold my breath.
Friday’s key indicators look positive. But…
As I finish today’s Week in Review piece, futures have yet to post opening quotes, which usually happens after the dinner hour, Eastern Time. So I can’t predict Monday’s market open. Or the future of the Great Silver Surge.
The McClellan Oscillator rose last week to hit a short-term peak Friday, indicating the current rally could continue at least for a bit.
Meanwhile, after a huge jackknife move up last week, the VIX volatility index quickly settled back down to the region of low volatility it had previously found comfortable. This would indicate that, at least for now, markets shouldn’t start out the coming week with a violent move either up or down. (Both charts via stockcharts.com)
On the other hand…
But I can tell you that BLM is back in DC Sunday, threatening to burn the town down, and doing so in the DuPont Circle area, not terribly far from the tony Kalorama neighborhood, home of Barack Obama’s backup White House.
– Headline image: Rock, paper, scissors, silver? Cartoon by Garrison. Reproduced with permission and by arrangement with Grrrgraphics.com. Slightly re-sized to fit CDN format.