GameStop shares halt slide after Robinhood lifts trading curbs
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[February 06, 2021] (Reuters)
- Shares of GameStop and other companies
caught in the recent social media-fueled trading frenzy bounced on
Friday, after online broker Robinhood lifted all the buying curbs
imposed at the apex of the battle between amateur investors and Wall
Street hedge funds.
The videogame retailer, the initial trigger for the market slugfest
after gaining popularity on social media platform Reddit's
WallStreetBets, closed up 19.20% at $63.77 after hitting a session high
of $95, although the wild gyrations seen in the past two weeks appeared
to be easing.
"The WallStreetBets influence is diminishing to a certain extent because
there are a lot of people that got burned," said Dennis Dick, head of
markets structure and a proprietary trader at Bright Trading LLC in Las
Vegas.
"From a short seller's perspective, I was spooked a week-and-a-half ago
to short any small caps because I was worried WallStreetBets could
squeeze me on it," Dick said. "I’m not spooked anymore; I kind of went
back to normal trading, so I can say I think the WallStreetBets
influence is not as strong as it was last week."
Robinhood, among the fee-free online brokers credited with fueling the
trades, said late on Thursday it had removed all buying restrictions
imposed due to a surge in clearinghouse deposit requirements last week.
With many of the stocks involved in the so-called "Reddit rally"
slumping this week, hedge funds with bearish positions on GameStop made
$3.6 billion in profits compared with losses of $12.5 billion in
January, financial analytics firm Ortex said on Friday.
The slump cut declines so far this year for GameStop shorts to $8.73
billion realized and unrealized losses through Friday morning, according
to analytics firm S3 Partners.
Analysts pointed to a stunning Hong Kong debut for Tencent-backed
Kuaishou Technology as more evidence of the growing power of small
investors, but on the WallStreetBets forum at the center of the last
week's action there were few signs of consensus around new stock market
favorites.
"The speculation is now fading, but that doesn't mean it can't come back
a month or two months from now," said Peter Cardillo, chief market
economist at Spartan Capital Securities in New York.
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GameStop stock graph is seen in front of the company's logo in this
illustration taken February 2, 2021. REUTERS/Dado Ruvic/Illustration/File
Photo
"A lot of the small investors may have gotten burnt, so it's going to take time
to heal that wound," Cardillo said. "It may not pop up in those stocks that were
already attacked, but it could happen in other companies and maybe on a broader
scale."
Other stocks that have seen sharp declines as their fortunes reversed in the
social media phenomenon, such as Koss Corp and the U.S.-listed shares of
Blackberry closed higher on Friday, while others such as Bed, Bath & Beyond, saw
their price fall slow.
U.S. Treasury Secretary Janet Yellen met with top officials on Thursday to
discuss the volatility, and sources told Reuters securities regulators were
looking at all aspects of the rally and all parties involved.
GameStop's stock has crashed to as low as $51.09 after scaling as high as $483
last week, but is still up about 220% from levels at the start of the rally in
mid-January. Shares of cinema operator AMC Entertainment have more than halved
from a closing peak of $19.90 and closed down 3.67% on Friday.
Shares of insurer Clover Health, which on Thursday became the first company to
be targeted by a short-selling report in weeks, rose 5.7% due to a late rally
sparked by comments from venture capitalist backer Chamath Palihapitiya in
response. The company earlier said on Friday it had received a letter from the
Securities and Exchange Commission following the report published by Hindenburg
Research.
Meanwhile, on WallStreetBets, participants were still urging investors to stick
with GameStop.
"GME YOLO/FOMO my second mortgage. 35k to 5mil to 300k. I WILL NOT SELL!," read
one post by a participant with the handle u/Rhollow1.
(Reporting by Chuck Mikolajczak in New York; Sagarika Jaisinghani and Susan
Mathew in Bengaluru; Editing by Arun Koyyur and Jonathan Oatis)
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