Up, up, and away. Silver and equities are soaring this morning as retail investors attempt to keep the short squeeze going. As of noon, GameStop (NYSE: GME) is down roughly 18%. Its compatriots, AMC Entertainment (NYSE: AMC) and Nokia (NYSE: NOK) are struggling to hold the line.
It’s a bit of a shock given that GME opened higher on the day after Robinhood eased the stock’s trading limits. Now, Robinhood investors are allowed to hold a whopping four shares – as opposed to just one – thanks to recent changes made by the broker.
That may have contributed to the initial surge this morning, but it didn’t stop traders from quickly reversing course on GME. Speculators scrambled to find a cause for the sudden dip before ultimately identifying a plunge in short interest as the culprit.
“GME short interest is just $8.82BN or 27.12M shares shorted” tweeted S3 Partners founder Ihor Dusaniwsky.
“[Shares] shorted have decreased by -35.2M over the last week.”
The swing in shorts has wreaked havoc on “dumb money” opportunists looking to take advantage of the GME run-up. Speculative dreamers on the WallStreetBets subreddit spent the whole weekend campaigning for GME bulls. They encouraged users to hold GME at all costs while ignoring other stocks.
But with short interest falling, retail traders are losing their furor. That’s ironically caused a GME slump.
Silver stocks gave back much of their morning gains as well as physical silver fell. Pan American Silver Corp. (NYSE: PAAS) opened 15% higher today before jumping another 7%. It’s now trading for a still impressive, albeit not quite as impressive, 8% gain. Other silver miners and the iShares Silver Trust (NYSE: SLV) endured similar volatility.
That might mean the Robinhood “squeeze fest” is coming to an end. If it is, bulls will soon be sighing with relief.
Wall Street would appreciate it, too. Goldman Sachs told clients yesterday that last week’s short squeezes “demonstrated that unsustainable excess in one small part of the market has the potential to tip a row of dominoes and create broader turmoil.”
It’s something we discussed previously; the fact that hedge funds needed to sell healthy long positions to cover runaway shorts. If the squeezing lasted too long, the speculative blitz would eventually lead to a market meltdown.
Goldman seems to recognize that now. The bank’s analysts also said on Sunday that the short squeezes could persist.
“The retail trading boom can continue” they explained, citing “an abundance of US household cash should continue to fuel the trading boom.”
Today, the rapid evaporation of short interest may have Goldman singing a different tune. The market certainly looks ready to resume its post-vaccine rally if it can stabilize.
It will all come down to whether or not retail traders sober up. If GME and silver stall, other targets – like gold – could take their place.
And though an artificial gold surge would make many investors uncomfortable, it wouldn’t gouge equities like last week’s attack on hedge funds. That could put bulls back in the driver’s seat for February, a month historically controlled by bears.
Add in a rediscovered stimulus narrative, and you’ve got the makings of a rally continuation.
Provided, of course, that the war on Wall Street draws to a close.
