If long shareholders see the tumbling stock as a new buying opportunity, we may be at the start of part deux of the GME short squeeze.
By Ihor Dusaniwsky
The momentum against GameStop picked up on Tuesday morning as the short-squeeze rallies fueled by traders on Reddit’s r/WallStreetBets forum started to unwind. Shares of the retail investor favorite were sent tumbling as hedge funds and Reddit traders alike were left to wonder what’s to come for the volatile stock.
Yesterday, GME saw continued short covering, but to a much smaller extent than it had experienced over the last few days. With today’s stock price weakness, we should expect short covering to be minimal, with the possibility that momentum shorts jump into the trade. Stock borrow availability has increased so shorts are once again able to add on to or initiate short positions.
And GME’s fall may not be over: What may exacerbate its stock slide are long shareholders trimming their holdings and realizing some of the unrealized gains they’ve earned as GME’s stock price skyrocketed.
S3 data helps tell the whole story. Now, GME short interest is $5.81 billion, with 26.09 million shares shorted. Traditional SI % Float is down significantly from its highs in the 140’s% at the beginning of January. The SI % of Float is st 51.13% and the S3 SI % of Float, which includes synthetic longs created by short sales, is at 33.83%, telling us that there’s ample stock loan supply for short sellers to access, should they want to short more shares. The stock borrow fee on existing shorts is 19%, while the stock borrow fee on new shorts is 10% to 20% fee.
Over the last week, the number of GME shares shorted has decreased by -37.24 million shares, worth $8.4 billion, a decrease of -59% as its stock price rose +193%. We saw just over 1 million shares covered yesterday. Shorts are down -$9.5 billion in year-to-date mark-to-market losses, -278% for the year, and are up +$3.08 billion in profits on today’s -52% price move ($107.00).
If long shareholders begin to sell their positions, expect short sellers to jump in and help GME’s stock slide continue. But if long shareholders see the tumbling stock as a new buying opportunity, we may be at the start of part deux of the GME short squeeze.
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