GameStop Corp shares halved in value on Tuesday and silver prices retreated as the Reddit-driven trading frenzy that has shocked global financial markets appeared to fizzle, at least for now.
The videogame retailer’s shares, which have seesawed wildly with hedge funds and other investors making or losing billions of dollars, were last down 54 per cent at US$101.64. They are now worth less than a quarter of their high of US$483 last week.
Other so-called meme stocks caught up in the Reddit rally also sold off. AMC Entertainment Holdings Inc, Express Inc, and Koss Corp each dropped by about a third, while Naked Brand Group Ltd, BlackBerry Ltd and Bed Bath & Beyond Inc showed double-digit percentage losses. Nokia’s U.S.-listed shares fell eight per cent.
“The rally is likely over (since) the short positions are pretty well taken care of,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.
“That’s the game you play when you do this thing. It can work for a while until it stops working and when it stops working, it reverses pretty quickly.”
Short-sellers saw paper gains of US$3.39 billion during Tuesday’s session, according to S3 Partners. Year-to-date realized and unrealized losses for shorts recently stood at US$9.2 billion.
“We have had a lot of shorts take their losses and walk away from the trade,” said Ihor Dusaniwsky, managing director of predictive analytics at S3.
Spot silver prices, an alternative focus in the battle between a pack of small traders and Wall Street hedge funds, fell more than seven per cent after hitting an eight-year high on Monday. The main silver ETF was down 8.4 per cent.
The retail frenzy in silver has left some dealers scrambling for bars and coins to meet demand.
Analysts said the silver pullback may show the limits of small investors’ impact in a large market, while posts on the popular Reddit forum WallStreetBets ranged from those giving up on the GameStop trade to calls to stick with the stock.
Online broker Robinhood, on whose platform much of the buying and selling has taken place, raised trading limits on GameStop Corp, AMC and other stocks, according to an update on its website on Tuesday.
Analysts predict that the market action, which has drawn the attention of regulators and politicians, was likely to fade, and said it was just a question of how soon.
“This is a pretty narrow strategy that likely creates some bizarre situations like GameStop and AMC but it’s not broad enough to change how institutional investors are going to invest,” said Rick Meckler, a partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.
“The strength of the move was so severe that it really opened up people’s eyes to the power of social media in the investment world. But having seen it and how short-term the nature of it is, I think it’ll lose its surprise. Can already see it with silver.”
Robinhood’s app recorded more downloads than any other U.S. trading app last week despite concerns about its restrictions on transactions.
The GameStop saga is likely to expedite a regulatory review of the role non-bank firms play in markets, experts said.
GameStop, AMC, Koss, BlackBerry and Bed Bath & Beyond did not immediately respond to requests seeking comment on Tuesday.
Broader markets appeared to be moving on and U.S. stock indexes built on the previous session’s momentum. Wall Street’s fear gauge retreated.
In London, a sign of still-strong demand came from online greeting-card retailer Moonpig, whose shares leapt 17 per cent in their debut, while emerging markets research house Tellimer named Ping An Insurance and Tencent as ripe for a short-squeeze in Asia.
Billionaire Elon Musk, whose tweets helped sent shares soaring last month, said he was taking another break from Twitter.
Billionaire investor Steven Cohen’s Point72 Asset Management, which suffered a 15 per cent loss this year due to the surge in GameStop’s shares according to a report last week, has opened to new cash and raised more than US$1.5 billion in commitments, Bloomberg News reported on Tuesday, citing people familiar with the matter.
CME RAISED SILVER MARGINS
One big drag on silver prices was a Chicago Mercantile Exchange margin hike on contracts for the metal, which makes speculative trade more expensive.
Mining stocks including First Majestic Silver and Pan American Silver fell.
In interviews with more than a dozen digital brokerage users, Reuters found a younger generation approaches trading much differently than Wall Street. As a result, retail traders and professionals may be tempted to turn the tactic of squeezing short positions into a full-blown investment strategy.
The Reddit online forum that fired up the frenzy was in a more sober mood on Tuesday, with many investors begging others to “buy the dip.”
“Redditors are focused on meme stocks and that fight should continue – right now they think that silver is a distraction to their cause,” said Ephraim Rinsky, a novelist who was one of the first Redditors to post about buying silver on WallStreetBets.
(Reporting by Thyagaraju Adinarayan in London and Sumita Layek, Swati Verma, Medha Singh, Susan Mathew, Arpan Daniel Varghese and Shariq Khan in Bangalore Additional reporting by Eva Mathews, Aishwarya Venugopal and Lewis Krauskopf Writing by Tom Westbrook, Sagarika Jaisinghani and Nick Zieminski Editing by Dan Grebler and Matthew Lewis)