GameStop’s short coverage is not dependent on last week’s falling markets

by

GameSto

GME
p has been very prominent in the last few weeks, as its stock has risen over 1,500% since Tuesday, January 12. Its market potential has gone up from $ 1.4 billion to nearly $ 23 billion since Friday, January 29, which caused a huge loss for investors who had shortened GameStop shares.

While some have pulled back from their highs on Wednesday or Thursday, there have been other stocks that have caught the attention of investors and non-investors. AMC Entertainment or AMC Theaters, BlackBerry and Koss are among the most visible. With BlackBerry just moving higher by 85% in the next two weeks, AMC and Koss have gone up 479% and 1,875%, respectively.

While these are surprising, attractive trends in such a short period of time, the purchase of these stocks by investors covering their short positions is not the reason for the overall market (S&P 500 down 3.4% and the Nasdaq

NDAQ
 fell 3.6%).

Market caps just aren’t big enough

Every day market pundits have a number of reasons why the stock markets move up or down or remain relatively flat. The most commonly discussed reasons are new economic figures, what the Fed is doing or not doing, what politicians are doing or more likely not to do or why latest du jour.

The last two weeks have been the latest GameStop, Reddit thread and summaries of WallStreetBets and they need to cover a very big situation. While this is certainly news, the market shares of GameStop and these other companies are not large enough to have impacted the markets on their own. At some point, perhaps sooner or later, these stocks will return to earth and become a blip on the radar screen of a historic stock market.

GameStop is largely the stock that has been able to increase its market potential by the largest amount. From the end of last year these are a few days worth it.

  • December 31, 2020: $ 1.3 billion
  • January 12, 2021: $ 1.4 billion
  • January 13, 2021: $ 2.2 billion (first major increase in stock)
  • January 22, 2021: $ 4.5 billion (up 226% from January 12)
  • January 29, 2021: $ 22.7 billion (up 1,529% from January 12)

Between January 12 and 29 GameStop’s market cap rose $ 21.3 billion and last week rose $ 18.2 billion. AMC was the second largest value cap of these other high-profile stocks, but only saw its market cap increase by $ 2.8 billion.

While the GameStop rise was pretty big, it stops compared to some of last week’s mega-cap stock movements.

  • Amazon

    AMZN
    : Down $ 133 billion
  • Apple

    AAPL
    : Down $ 122 billion
  • Google: Down $ 40 billion
  • Facebook: Down $ 39 billion
  • Total: Down $ 334 billion

Microsoft

MSFT
 it was the only FAAMG stock to see its value rise in the past week, going up by $ 45 billion.

Even though FAAMG stocks were the only ones used by short sellers to raise money, the decline in their value was more than 13 times greater than the rise of GameStop.

And using Apple’s trade volume, hence the value of the shares traded, using an average daily volume of 143 million shares at $ 140 per share there was more than $ 20 billion in Apple stock traded daily last week. The other FAAMG stocks would also have been able to raise billions of dollars to cover GameStop purchases without significantly impacting the market.

Decompression is probably the main reason

The stock market has performed well over the past 12 years through the administrations of President Obama and Trump and the beginning of Biden. However, when it seems like something new is coming into the picture, such as the Reddit Raiders, portfolio managers tend to step back a bit to get to the position and so on. they are open.

This is especially true of investment vehicles that are both long and short on the market. In this case, assets with short positions, especially if they are in other densely populated trades, appear to have covered at least some of them. This in turn “forces the portfolio manager to reduce their long positions if they want to maintain the same dollar ratio between their long and short positions.

One way to see the level of risk in the stock markets is through the VIX or the Volatility Index. It has gone up in the last three days and while it is nowhere near high full – time rates it has certainly caught the attention of portfolio managers.

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