The turmoil in parts of the U.S. stock market caused by the WallStreetBets crowd has prompted an American trader to drop his old playbook that has been built up over decades.
Larry Peruzzi, Head of International Trade at Mischler Financial Group Inc. and a veteran of more than three decades of market action, said he spends less time on the fundamentals of the stock and much more time on techniques and in chat rooms.
“We are currently looking much less at the balance sheets and much more at the chat rooms, trading fast and avoiding using any valuation while trading,” Peruzzi said. “It does not make sense, but would we expect anything less in 2020/2021?”
In the past week, markets have been boosted when day traders traded stocks like GameStop Corp. and AMC Entertainment Holdings Inc. hovered in hopes of squeezing out short sellers. It works: Melvin Capital closed its short position and Citron Capital covered most of the short term with a loss of 100%. It has the crowd at places like WallStreetBets newly confident, even if the activity is attracts attention like the Securities and Exchange Commission.
Historically, institutional investors have tended to welcome retailers because they Peruzzi added liquidity to the markets. But now it’s causing major trading and liquidity problems, and speculation is mounting that funds may be forced to sell a number of shares to meet margin calls,
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For now, there is a silver lining, at least for the companies whose shares are strengthened by all the activities, Peruzzi said.
“Most of these businesses are an angel and many live on borrowed time,” he said. “The positive in all this irrational trading is if these businesses can act quickly, additional stocks can provide the necessary capital to survive.”