Why Did Reddit Trigger a GameStop Stock Surge?

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In summary, the reddit users successfully attacked Gamestop by buying the stock, while the hedge funds lost billions.
  • #771
bhobba said:
It is what all the traders I know said - and I figured it out independently. They have been playing the market for a long time. The evidence is we had lousy inflation data that sent the premarket down over 70 points. No other data came in. When the market opened, it opened 60 points lower and, as expected, went even lower to 80 points lower. Then it turned around a bit, then a bit more and finally started rising through the whole day. Short sellers set automated stops, and you could see the avalanche buying as those stops were hit. Is this proof of a short squeeze - of course not - just the most reasonable explanation. So I will change my statement - an example of a likely short squeeze. The futures are still rising - so may continue today - depending on when it exhausts itself. I have two choices - either close my spread when it hits the stop loss - for a high probability credit spread, usually 3 times the credit or sell a put credit spread to take in more credit to limit losses that way. If a short squeeze, the second option is what most traders would do. I have that set at 25 delta - it's at 15 delta now. Hopefully, it will not reach that, and I will have to adjust

Thanks
Bil
Yes, should be careful of easy narratives and trader lore. Bloomberg's short interest index - the performance of the 100 stocks in the Russell 3000 with the highest short interest - returned 1.9% yesterday, compared to 2.6% for the S&P 500 and 2.4% for the Russell 2000. This does not preclude some change in index short / long positioning, but makes it unlikely that covering by short sellers of individual stocks contributed significantly to the reversal yesterday
 
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  • #772
Random Thought:

Price rebound math is brutal. BTC is down from 60K to 20K roughly. That 66% loss requires a 200% gain to get back to even.

Wondering how long meme stocks that fell 75, 80, and 90% this past year take to get even?
 
  • #773
kyphysics said:
Random Thought:

Price rebound math is brutal. BTC is down from 60K to 20K roughly. That 66% loss requires a 200% gain to get back to even.

Wondering how long meme stocks that fell 75, 80, and 90% this past year take to get even?
and do you know how something goes down 90% ? it first goes down 80% then it drops 50%
 
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  • #774
BWV said:
and do you know how something goes down 90% ? it first goes down 80% then is drops 50%
Always fascinating stuff. Fun to think about.

Snapchat stock was $83.11 recently and fell to $9.34. Almost a 90% drop.

Wonder if it'll get back to $83.11 by 2030?
 
  • #776
kyphysics said:
Wondering how long meme stocks that fell 75, 80, and 90% this past year take to get even?
I think most of them may go out of business before they ever do that.
 
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  • #777
Amazon.com stock dropped by over 90% in the early 2000s
 
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  • #778
kyphysics said:
Wondering how long meme stocks that fell 75, 80, and 90% this past year take to get even?
phinds said:
I think most of them may go out of business before they ever do that.
BWV said:
Amazon.com stock dropped by over 90% in the early 2000s
Given that the Nasdaq dropped by 78% in the crash, an extra factor of 2 doesn't sound like much to me. I'm not sure if Amazon had pivoted yet from selling books to selling everything, but the meme stocks have not made pivots that would imply future justification for even their current values. There really was never any justification for their spikes and their crashes were not due to an overall market crash.

Also, that makes the odds for BTC going back to $60k much better than the meme stocks. Since BTC's value is based on nothing whatsoever its value can be anything for no reason. Meme stocks are companies, so they have basis for their value which makes massive price fluctuations for no reason harder to do.
 
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  • #779
Nobody knows. That's why I dollar cost average (DCA) into low-fee ETFs like Vanguard VDHG. Just keep doing that and forget about market gyrations. Also, with a small amount of money, I trade options. My current strategy is to sell low delta spreads. The exact strategy is called the Monthly Income Machine you can Google on if interested. But I only do it with a small amount of money. If your strategy is viable it will grow, if not, that is why you do it with a small amount of money. The kind of returns you can expect after tax (and is, of course, dependent on your tax situation), is a bit less than DCA into ETF's here in Australia (you need to consult a good accountant). The trouble is you can't spend capital gains, and if you sell - then whack - you pay tax. That's why it complements DCA well - that can provide, along with dividends from your ETFs, the income you need to live. The other strategy is to sell puts and calls on your ETFs to increase returns. It's called the wheel those interested can Google on. The majority of your money should be in low-fee ETF's you do not sell. But as to predicting what will happen in the long term with individual stocks - even Warren Buffett can't do that - he simply buys sound companies and holds them. He is good at picking companies that do well long-term - but not all his picks work out. If you have faith in Warren, you can always buy his class B shares and like an ETF hold for the long term.

Thanks
Bill
 
  • #780
russ_watters said:
Given that the Nasdaq dropped by 78% in the crash, an extra factor of 2 doesn't sound like much to me. I'm not sure if Amazon had pivoted yet from selling books to selling everything, but the meme stocks have not made pivots that would imply future justification for even their current values. There really was never any justification for their spikes and their crashes were not due to an overall market crash.

Also, that makes the odds for BTC going back to $60k much better than the meme stocks. Since BTC's value is based on nothing whatsoever its value can be anything for no reason. Meme stocks are companies, so they have basis for their value which makes massive price fluctuations for no reason harder to do.
Yeah, Amazon may not be the best case for a rebound. . .You can argue it was a once-in-a-lifetime super company. I have doubts about whether Zoom, Snapchat, Pinterest, Shopify (which has been hurt by "Buy w/ Amazon"), Teladoc, Square/Block, etc. will have the same wide-reaching, transformational success and profitability to justify their once lofty valuations.

Amazon and Netflix aggressively attacked their spaces with first-mover advantages when so many people didn't believe in the internet. They laughed at their business models and potential to disrupt traditional brick and mortar stores.

Nowadays, everyone already knows how powerful the internet is in quickly reaching a wide audience and the ability to make money using it (be it in e-commerce, advertising, business/productivity tools, etc.). Not sure Shopify can attack Amazon successfully with what they do. Teladoc has lots of competitors (even Zoom is used in telehealth). Men don't seem so interested in Pinterest. "Older" people don't use Snapchat. etc.

Some of those growth meme stocks could be huge, but I wouldn't think Amazon would be the template to use for most of their trajectories.
 
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  • #781
kyphysics said:
Some of those growth meme stocks could be huge...
Bear in mind the title of this thread. Buying shares of a stock because one expects the company to do much better in the future is a very different thing from buying shares of a stock to try to attack a hedge fund. One needs to think hard about what they are really expecting the company to do and why they are buying the stock.
 
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  • #782
Here's a good article on what we're talking about, specific to GME*:
https://www.fool.com/investing/2022/03/19/gamestop-bulls-making-3-mistakes/

Somebody looking to potentially buy some GME or any other meme stock today has to either identify a growth opportunity or see it as a cost of warfare. I'll set aside the second and focus on the first. What are GME's prospects for growth? There's two basic possibilities:
  1. Another meme-fueled frenzy pump-and-dump. If you expect that, you can get in now so you can dump at the peak of the bubble before it crashes again.
  2. GME is going to become a much healthier/more profitable company than it is today (the usual reason people buy a stock).
For #2; Gamestop is not a complicated company. As the article says, their prospects for survival are decent, but surviving isn't thriving. In order to thrive, they'll need to fundamentally change what they are as a company. Maybe they can, but they haven't shown a good reason to believe they will. The article mentions a foray into NFTs, but it was written before that crashed (oops).

*fool does a lot of shady clickbait advertising, so it's rare I'd say that about one of their articles...
 
  • #783
Not a fan of Motley Fool, b/c the depth of analysis in their articles is often lacking.

I'm talking about the freemium stuff, though, as I don't subscribe to their paid offerings. The free stuff often has only qualitative points that are often obvious already and a lack of quantitative valuation analysis.

This is maybe slight hyperbole, but you could easily get an article like this:

"Three Reasons to Buy Disney Stock Right Now"
Disney's earnings have taken a hit lately, due to the pandemic shutdown of parks. Once the pandemic is over and parks reopen, earnings shall rebound.
Disney+'s subscribers are growing at a pace faster than Netflix's early adoption and may overtake them in total subs within three years.
Disney's moat is unassailable in the content industry. Whether 5, 10, or 15 years from now, Disney will still be around and the leader in the industry of family and kid entertainment.

I usually roll my eyes. I could have written that! There's no quantitative analysis/ valuation done. All points are obvious. There's no bear case. . . .A middle-schooler reading the news or watching CNBC could have written this.

Here is an ACTUAL Motley Fool article perhaps not too far away from this hyperbolic version:

Why I Bought Disney at Its High​

https://www.fool.com/investing/2021/04/27/why-i-bought-disney-at-its-high/

I thought the author was a moron for ignoring valuation and certainly didn't take her advice. I personally bought when it got to $93 this year (it's been oscillating between $90 and $100 lately) vs. the $200 she paid.

Very rarely will I find an article I like on MF. I prefer Seeking Alpha, but don't always agree with them either. But, I feel the articles are much better.
 
  • #784
russ_watters said:
Bear in mind the title of this thread. Buying shares of a stock because one expects the company to do much better in the future is a very different thing from buying shares of a stock to try to attack a hedge fund. One needs to think hard about what they are really expecting the company to do and why they are buying the stock.
I guess I lump "growth stocks" (Snapchat, Shopify, Square/Block, etc.) that got out of control into the category of "meme stocks" too (Gamestop, Bed Bath and Beyond...airlines...cruise ships, etc.).

But, yeah, I agree there's a difference. One at least has a viable business that might grow into its valuation...the other is used for attacking hedge funds and/or was a retail investor meme/popularity play.
 
  • #785
kyphysics said:
Snapchat stock was $83.11 recently and fell to $9.34. Almost a 90% drop.

Wonder if it'll get back to $83.11 by 2030?
now it's $7.91 afterhours...who wants to do the rebound math?
 
  • #786
kyphysics said:
Always fascinating stuff. Fun to think about.

Snapchat stock was $83.11 recently and fell to $9.34. Almost a 90% drop.

Wonder if it'll get back to $83.11 by 2030?

kyphysics said:
now it's $7.91 afterhours...who wants to do the rebound math?
sure, it only needs to go up around 5%

after a 10-1 reverse split
 
  • #787
Twilio - from $425 to $42.74 in a little over a year.

Has anyone witnessed this sort of devastation with so many growth and meme stocks since the Dot Com bust? Was 2008 like this?
 
  • #789
Kodak
1667655850558.png
 
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  • #791
So, the idea is tht if there is some sort of corporate meeting, everyone gets together and chomps popcorn while the CEO blathers on over Zoom?
 
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  • #792
Vanadium 50 said:
So, the idea is tht if there is some sort of corporate meeting, everyone gets together and chomps popcorn while the CEO blathers on over Zoom?
Apparently. I heard some comment about "enhancing the participants experience".

I strongly dislike some stranger deciding how they will 'enhance my experience'. I'll decide how I will enhance my experience - not someone else - thank you vary much.

Maybe they could get Peleton involved somehow. They could ride their indoor cycles, chomp popcorn and listen to CEO blather.
 
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  • #793
Well, maybe they could do a double-feature with a X-rated movie. "Our profits aren't the only thing that's obscene!"
 
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  • #794
Elon Musk’s tenure at Twitter got even bumpier on Thursday, as he reportedly told employees during an emergency all-hands meeting that he can't rule out the company filing for bankruptcy in the next year.
https://finance.yahoo.com/news/musk...ce-bankruptcy-next-year-report-221322212.html

I've heard the same story from a variety of sources. I have to wonder about a CEO or owner who muses publicly about a failing company.
 
  • #795
Astronuc said:
I've heard the same story from a variety of sources. I have to wonder about a CEO or owner who muses publicly about a failing company.

I think what is going on in Elon's mind is anybody's guess, but we can make a reasonable hypothesis. Both where I am in Australia and the US, we have free speech guaranteed by law (with a few necessary caveats). When Twitter was asked to explain exactly how some banned people breach those caveats, you get answers like, such as in the case of Jordan Peterson; 'for hateful conduct'. Who decides what is hateful and what is not? It looked to many somewhat arbitrary to the point Elon felt those making the decisions were simply doing it based on their biases. This irked him to the point he spent a fortune buying Twitter so he can have the last laugh about an issue that annoys him. Witness going into Twitter carrying a sink. You are on notice - I am in charge now, and what I say is how Twitter will be run. I suspect putting the bogyman of bankruptcy on the table is just another tool he is using to bring home to all employees - the times they are changing.

For what it is worth, IMHO, when Twitter makes a decision, some think is not reasonable, then call it out. Jordan Peterson, who has a large following, did just that. They either must tackle Jordan's arguments (not easy to do as he is good at arguing his position) or ignore him and leave people to think they can't counter them. Its credibility sufferers and market forces will eventually force a change or it will not survive. Just a personal view. Maybe Elon just wants to hasten it along and hopes the forum will gain in popularity by changing how it is run so he can make some money - although I believe that is a long shot. Still one never knows.

Thanks
Bill
 
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  • #796
I see that AMC is now down to $4, GME is down to $16, and Robinhood is below $9. Gravity wins again.
 
  • #797
phinds said:
I see that AMC is now down to $4, GME is down to $16, and Robinhood is below $9. Gravity wins again.

Nobody can predict the gyrations of the market except in statistical terms eg over the long term the market goes up. That is how all legit market strategies work, even just dollar cost averaging into an index fund. For a different approach on the same theme, see the following:


It relies on the fact that over a long period, 90% of the time, the market is greater 65 days at any point regardless of market conditions. However, its long-term profit is about 20% pa, with scary volatility. It is so volatile one of its rules is you only trade it with 10% of your capital.

It does not give the figures for last year, which was a bear market. It lost about 200%. But the previous year made about 500%. See what I mean by volatile? That 20% overall is based on a trade size of 10%.

If you have the guts to try it, it does have the advantage of the other 90% of your capital can be put in a high-interest/distribution account or ETF (eg PUTW), or you can do it on option margin ie your option buying power is twice any other assets you may hold. If you have a large account some brokers will give a much greater margin.

Thanks
Bill
 
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  • #798
phinds said:
I see that AMC is now down to $4, GME is down to $16, and Robinhood is below $9. Gravity wins again.
It's still down a lot from the high, but above what it was before being memified: note that GME had a 4:1 split.
 
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  • #800
But stonks only go up!

I'm not sure what is cause and effect here. GME missed analyst expectation s by 10% and is continuing their revolving door CEO um....tradition. Which is Wall Street reacting to?

They are down 17% - that's not a crazy amount on missing earnings by 10%, especially as revenues continue to slide. GME doesn't pay a dividend, so a rationl investor will buy the stock only if they believe it will appreciate faster than a safe investment, like US Treasuries. Those are running at about 4.5% now.

Does GME look like it will do better than that? Apparently fewer and fewer people think so.
 
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  • #801


Will there be a Physics Forum watch party for this film?
 
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  • #802

GameStop shorts dealt $1.4 billion paper losses in meme revival​


GameStop stock gains more than 70%, gets halted for volatility after 'Roaring Kitty' post​


GME 2.0?
GME GameStop Corp.30.98+13.52+77.44%

Really? Again?

At Monday’s opening bell it appeared that Gill had reignited the phenomenon as shares of GameStop more than doubled. At midday, shares were trading 60% higher. It’s the biggest intraday trading jump for GameStop since the meme craze of early 2021. Other meme stocks like the theater chain AMC were jolted higher as well.

Trading in GameStop was halted eight times before noon on Monday due to volatility.
https://apnews.com/article/meme-roaring-kitty-gamestop-amc-stocks-401916acd3715d35cc0220143b26b2ac
 
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  • #803
The stock fell 30% today.
That makes it P/E 1260. It was roughly twice that at its recent peak.
 
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  • #804
So, one can say "Look, the meme-stockers were able to prop up GameStop yet again", well, maybe. That's not what happened with Bed Bath and Beyond...who is now in the Great Beyond. And AMC is still troubled.

Propping up a stock costs money. I think people are losing their interest in losing money to do this. Ironically, if they were willing to pay somewhat higher pricves for games and buy some more of them, GameStop would be better off.
 

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