GameStop and AMC, two iconic meme stocks that captivated retail investors during the 2021 frenzy, saw their shares tumble again on Thursday, marking the second consecutive day of declines. The brief surge earlier in the week, fueled by the return of Keith Gill, known as "Roaring Kitty," quickly lost momentum, leaving investors to reassess their positions.
GameStop shares fell 12% to $34, a sharp decline from the week's high of $64.83. This drop brought the total losses for short sellers to nearly $1 billion, according to Ortex Technologies. AMC shares also declined by 5.5%, despite having surged 88% since the previous Friday. Data from J.P. Morgan indicated that both companies remained among the top three most-traded stocks by retail investors on Wednesday.
The initial surge in share prices followed a series of posts from Gill's X account, rekindling memories of the 2021 meme stock boom when Reddit users drove up the prices of highly shorted stocks, forcing significant losses on hedge funds. This time, however, the market dynamics appeared different, with institutional investors also participating in the frenzy, according to Vanda Research.
Rick Meckler, partner at Cherry Lane Investments, noted, "The short sellers three years ago were completely surprised by the magnitude of the mass purchases and ultimately overwhelmed by the size of the short squeeze. They have likely learned from that experience and left themselves less exposed thereby reducing the potential for extended upward pressure."
Hedge fund Renaissance Technologies has increased its long positions in both GameStop and AMC, reflecting a strategic bet on further gains. Nevertheless, GameStop stock remains nearly 70% below its 2021 peak, while AMC, which hit a record low last month, is still 98% off its all-time high.
Gill, who gained fame during the 2021 short squeeze, has been prolific on X, posting more than 50 movie clips a day since Sunday. However, he has not responded to inquiries about his current investment strategy or the meaning behind his posts. Former U.S. SEC Chair Jay Clayton expressed concern over the speculative buying triggered by Gill's posts, stating that such actions are "never a good thing," although not illegal.
Despite the renewed interest, options activity around GameStop and AMC remained high. According to the Options Clearing Corp, both stocks were among the top ten securities with the highest options volume on Wednesday, with a majority of traders buying call options, which are bets on the stock price rising.
However, J.P. Morgan strategists noted that the pace of borrowing for margin trading has been more restrained compared to the 2021 short squeeze. Ben Laidler, global markets strategist at eToro, commented, "Retail investors are once bitten twice shy after they ended up losing a lot of money last time round. Even though there are more retail investors today, you're not seeing that follow through into the rally this time as you saw last time."
Other highly shorted stocks that rallied earlier in the week also experienced volatility on Thursday. Tupperware fell 1%, BlackBerry dropped 2.3%, and Koss Corp slid 6% to $4.67.
The current meme stock rally, though initially reminiscent of the 2021 craze, seems to be facing challenges. Dan Egan, head of behavioral finance at Betterment, predicted that the latest rally would be much shorter-lived, citing the different market conditions and investor behavior compared to the pandemic era.
