GameStop: is it only the beginning?

GameStop: is it only the beginning?

2022-11-23 • Updated

It seems like the recent drama between the Reddit users and Wall Street hedge funds has cooled down since the start of this week.  If you’ve missed this train, catch up with the article on the FBS website.

In just five days the Gamestop stock made severe falls to the area where the hype had begun. On February 3, the stock was already 5 times less than its all-time high. Still, a quick glance at the r/Wallstreetbets board tells us that people are hoping for a second spike to the upside.

Screenshot_21.png

So, who are these Reddit people, a bunch of losers or revolutionists? We’d say they are neither former nor the latter. They tried to make money fast and some of them did succeed.  Others participated just for fun.

In this article, we will dive into the depth of retail trading’s history and make a retrospective analysis of stocks that boomed during the dot-com era.  It will help us to answer the main question: will the rise of low-potential stocks continue? Should you join this trend?

What the fuss is about

If you haven’t read the article about GME performance, we highly recommend you to do that. In short, traders from r/Wallstreetbets started to buy the stocks of Gamestop – an American shop chain, beloved by everyone, but very unsuccessful. The hedge funds from Wall Street held short positions on the stock, as they expected it to fall. Unexpectedly to everyone, the stock started surging, thanks to the Reddit users. This led to a short squeeze – a situation in the market where sellers have to buy a stock at a more expensive price, causing it to go higher. A literal shock made hedge funds lose millions of dollars and even provoked Robinhood, a famous American trading platform, to close access for buying the GME stock. That was when the scandal reached its top point. Many analysts, politicians, businessmen, and even Elon Musk himself claimed the Robinhood decision as unfair. Critics referred to the connection between Robinhood and Citadel Securities that could have led to market manipulation. Both companies denied that, though.

Screenshot_22.png

It’s worth mentioning that GameStop has been not the only target of Redditors. Other stocks that experienced gains are AMC Entertainment, Blackberry, and Bed Bath & Beyond. The retailers bought silver last week as well, pushing the precious metal to August's high.

History of short squeezes

We aren't going to tell you about the Tulip Bulb Mania that happened in the 1600s when a fellow Dutch botanist overvalued the price of a tulip bulb and made everyone go crazy about it. (just like with Gamestop!)

Screenshot_23.png

Today, we’d recommend you to look at the more recent example. Back in the late 90s, early 2000s a lot of stocks boomed amid the dot-com popularity. People invested in companies without properly looking at their fundamental bias. Companies’ valuations skyrocketed, but their potential was low.

Another example is even closer to current realities. There were sites similar to Reddit boards back in the 1990s. One of them was siliconinvestor. In 1996 people tried to pump a stock of a tech company Zitel that was expected to fix the Year 2000 problem.  The price indeed spiked in the short-term on the rumors about potential investments by George Soros. Now it's almost impossible to find any data about this stock later than from 1998.

So, as we can see it's not the first time people try to milk money out of low-potential stocks. Was it worth it? For those, who were lucky enough and treated the market as a casino, yes. Others, who just followed the crowd, most likely did not succeed.

What’s next

The Gamestop situation creates an unprecedented case for big companies and institutional funds. That has happened because social trading has become extremely popular in recent years. Now, companies are monitoring the Reddit board in an attempt to find the next retailers' target. According to Thinknum Alternative Data's tool, there are Nokia, AT&T, and Toronto Dominion Bank among the most-mentioned companies in the board.

ATTDaily.png

At&T is the next to rise?

Should you join this crowd?

If you think that you want to gamble, then why not? However, gambling is not about true trading. In the former case, you trade stocks of companies that are likely to go bankrupt in few years. As for trading, you make your decisions based on fundamental and technical background.  As people have noticed, retail traders sometimes lose their capital even more when they try to outplay the Wall Street giants.

All in all, people believe in their power. Reddit traders keep holding the GameStop stock in hopes of the second jump, while analysts keep wondering about their next target. Will it be AT&T? 

Don't know how to trade stocks with FBS? Here are some simple steps.

  1. First of all, be sure you’ve downloaded Metatrader 5 or FBS Trader app. FBS allows you to trade stocks only through this software.
  2. Open the MT5 account in your personal area (an account in FBS Trader).
  3. Start trading!

Similar

Latest news

US100: Has the correction ended?
US100: Has the correction ended?

Bullish Scenario: Buys above 17910 with TP:18098.07, TP2:18277, and TP3: 18415 Bearish Scenario: Sells below 17850 with TP1:17730, TP2: 17700

Stocks To Watch For March
Stocks To Watch For March

During his program on CNBC on February 28, Jim Cramer expressed frustration with the impact of earnings reports on market behavior, noting how they often prompt rash decisions by average investors. He criticized the short-term focus and lack of attention to nuance in news coverage of earnings. Cramer cited examples of Home Depot and Lowe's, highlighting how investors reacted hastily to headline news without considering the broader context provided in earnings calls.

Nasdaq, S&P 500 Reach Record Highs
Nasdaq, S&P 500 Reach Record Highs

After creating record highs, Wall Street's main indexes opened on Wednesday and began to edge lower, reflecting cautious sentiment among investors. They're eagerly awaiting crucial inflation data that could impact the U.S. Federal Reserve's interest rate decisions. The upcoming release of the personal consumption expenditures (PCE) price index is expected...

Deposit with your local payment systems

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera