Peak GameStop?
GameStop’s volume and volatility were much lower this week than in the previous six days. This also applies to other strongly abbreviated names such as Bed Bath and Beyond, Express and AMC.
What is happening?
Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group, noted the signs that the endgame may not be far from GameStop: ‘More returns than calls have been traded recently. The open interest in call options is much lower. There is a decrease in volatility. There are signs that the Reddit streams are moving elsewhere like silver. These are definitely signs of peak GameStop. ‘
GameStop shares fell another 30% in pre-trading on Tuesday after losing 30% on Monday. The stock traded 37 million shares on Monday, at a high of nearly 200 million on January 22 and the lightest volume in seven days.
Just like the GameStop shorts they claim to have pushed out, many in the Reddit community have already made money and are no longer there. Some are ideologically committed, but they stay long. Others are looking for new opportunities, but Dan Egan, managing director of behavioral finance and investment at Betterment, says it’s getting harder to pull the troops together.
“The human brain yearns for stimulus through change,” he said on CNBC’s ETF Edge podcast. “One of the real challenges to these kinds of things is that they have to keep their attention on themselves by doing bigger and bigger and unusual things. And it’s really hard … That kind of attention is broken to other things that can give you the possibility have to go up. So you look at silver, other products, etc. “
The problem, of course, is that there is no investment committee – even the debate over silver has divided into groups and groups have opposed it.
And this is where the attention starts to focus, Egan said: ‘Many people think it was a change in the sea in the operation of the market, as long as a message board or a community can draw people’ attention to one specific stock. . , they can really move it, it’s going to happen again. But it’s going to be harder, because people’re going to understand that it’s a little mania, a thing of Ponzi scheme. You have to get in at the right time and get out at the right time … And once you remove the ability to focus everyone on the same stock, the ability to push up the price decreases. “
Does broken attention mean that the impact of the Reddit community will diminish, or can they agree on a new idea that excites a large group to make an impact? If Silver was accepted that it was such a choice, Silver was a very bad move.
Eric Balchunas, who covers ETFs for Bloomberg, noted in a tweet that the Silver ETF (SLV) had a strong volume but overwhelming price action: but shy of record and last week not close to $ GME. It got quite steamy in the second half of the day … “
UBS’s Art Cashin also noted that the same zeal for GameStop with silver was absent: “Did we break the back of the short print? Not quite clear yet. If the continued sales in GameStop remained, it would indicate that it was broken. “Cooperation to pinch the shorts breaks down as it draws their attention to the sharp attention. Where I think they may not be successful at all.”
The lack of leadership remains a critical issue, Egan said: “I think they have some people that you consider leaders but are not necessarily there to lead. They were casual leaders. They lose the sense of FOMO “the fear of missing something that has already happened. It’s a big driver of call, are people who do not want to regret participating in a social event. So it goes down as well.”
Finally, the intense attention the Reddit community has received means that Wall Street is well aware of what they are doing, he added: ‘These message boards are mostly public and their ability to bring a lot of people in and focus the attention depends on them being public. But it also means you can be an analyst at a bank, and you can read the message boards just as much. The ability to surprise professionals has decreased dramatically now that it has happened once. “
What does it all mean? For Murphy, this means a likely return to the status quo ante: “The end result is that GME returns to a more realistic level.”
Note: Susquehanna Financial Group is a market maker in the securities of GME and SLV. SFG and / or its affiliates advantageously own 1% or more of the securities of GME.
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