Second Short Squeeze Is On As GameStop Triples in 1 Day

GameStop shares have tripled in under 24 hours. Naturally, the blue chip investors behind the rise had a solid case for their optimism. After all, what about the ice cream cone?

Believe it or not, a GameStop board member posting a picture of a McDonald’s ice cream cone is one theory being bandied about to explain the red hot rally. Maybe it’s a sign? Or…maybe he just likes ice cream.

Also, the CFO was pushed out shortly before this rally, but it’s entirely unclear what that means for the company’s strategy.

There is no case for this rise based on the fundamentals, but there may be a technical one. I wrote about the possibility of a second short squeeze recently, and it may be happening. Shares short as a percentage of the float (stock that can be traded without restrictions) remains at 78%. Short sellers are losing a fortune:

Short-sellers are estimated to have lost $818 million on Wednesday from their bearish bets on videogame maker Gamestop

That’s losses of around 6.5% of the company’s entire market cap, in a single day. Ouch. (If you’re unfamiliar with short squeezes, check out this post for a quick explanation.)

But with repeated halts in GameStop trading and the fact that Robinhood could block buying again, it’s going to be hard for Wallstreetbets to wring the most out of this trade.

And either way, buying into a company with weak fundamentals just because there may be a short squeeze and the price could head higher is a very risky proposition. You don’t want to be caught holding shares in a moribund company once the short squeeze dissipates. And that could happen at any time.

If you’re interested in GameStop and the Wallstreetbets phenomenon, check out some of these posts:

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Photo: “GameStop” by JeepersMedia is licensed under CC BY 2.0


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