GameStop stock (GME) tanked 25% Wednesday as a rally among meme names showed signs of fading. Shares of the video game retailer are coming off a two-day short squeeze. GameStop stock gained more than 180% in the prior two sessions.
AMC stock (AMC) also fell 17% Wednesday after the theater chain operator rose 95% over the last two days. In an SEC filing, AMC disclosed it issued approximately 72.5 million new shares during Monday’s rally, raising some $250 million for the company.
Other heavily shorted stocks that fell Wednesday included SunPower (SPWR), Beyond Meat (BYND), and the Children’s Place (PLCE).
GameStop shares surged Monday after the reemergence of Keith Gill, also known as “Roaring Kitty,” whose bull case on GameStop ignited the meme stock rally back in 2021.
In a note to clients, Nicholas Colas, co-founder at DataTrek Research, wrote this recent trading action “feels like an echo of early 2021, when this account helped fuel a vicious short squeeze in GameStop.”
Colas noted that the move back in 2021 was quite a bit larger than what we’ve seen so far this time around, with GameStop stock rising 1,500% in January 2021 before forfeiting most of those gains.
The pain short sellers endured during the original meme stock rally three years ago hasn’t deterred bets against these companies, however.
Short interest in GameStop has remained elevated since that meme rally, data from S3 Partners showed, with almost 24% of the float.
GameStop shorts were down $1.36 billion on Tuesday after losing almost $900 million on Monday.
“We are seeing continued squeeze related short covering due to the rebirth of the meme trade,” said Ihor Dusaniwsky, managing director of S3 Partners.
In Colas’s view, a trader shorting a stock rallying with this kind of aggression is left with only one option: “Your only choice is to close out the position regardless of the price.”
“In the case of GME, you are also afraid that retail traders will be enticed into a replay of 2021,” Colas added.
The meme frenzy three years ago garnered national attention, attracting an army of retail traders during the pandemic lockdowns.
“I don’t look at this at all like I did in 2021 when it was almost a transformational moment, dragging, you know, tens of millions of people back into the marketplace,” said Tom Sosnoff, CEO of tastylive, an options and futures trading platform.
On Tuesday, YouTuber Matt Kohrs, who has held positions in GameStop and AMC in the past, said the pivotal aspect of “the little guy versus the big guy” during the short squeezes of 2021 holds true today.
“The perception is that the entire system is set up and insulated to benefit the powerful elite. GME is the symbol of the populist movement against that concept,” said Kohrs.
“The only true change I see from a psychology standpoint is not being locked inside anymore,” he added.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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