Another Short Squeeze Appears to Be Brewing for GameStop

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The frenzied hordes of social-media traders seem to be bracing for a big move in GME stock

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Prior to 2020, most traders probably didn’t give video-game retailer GameStop (NYSE:GME) much thought. A whole lot has changed in the past few months, however, and today GME stock is at the center of an ongoing debate.

On one side of the debate is the grassroots movement of traders who want to “stick it to the man.” And by “the man,” I mean the well-heeled short sellers who punished amateur long-side traders for years.

But then, there’s another group of commentators who see things quite differently. Some folks view the GME stock price as divorced from reality as GameStop isn’t necessarily a thriving business.

As you can see, there’s a lot to unpack here. Add into the mix some recent undercurrents suggesting that another short squeeze might be in the works, and you’ve got a market phenomenon that simply cannot be ignored.

A Closer Look at GME Stock

During the summer of 2020, the world was still reeling from the economic impact of the Covid-19 pandemic. At that time, GME stock was floundering below the $5 level.

Like a plane starting to take off, the share price ascended throughout the remainder of the year. By Dec. 31, it had reached $18, which already represented a substantial gain.

Yet, that was a drop in the proverbial bucket compared to what was coming. Fueled by Reddit and Robinhood traders, GME stock rocketed to an astounding 52-week high of $483 on Jan. 27, 2021.

I often say that price chasers get punished. Indeed, that’s precisely what happened next as GameStop shares crashed to the $40 area on Feb. 19.

There’s been some recovery since that time. On May 21, the GME stock price settled at $176.79.

At the same time, GameStop’s trailing 12-month earnings per share was -$3.31.

This makes it difficult for me to recommend the stock, as negative earnings and a massive share-price run-up isn’t necessarily an auspicious combination.

Tracking Social Sentiment

“There’s a clear desire for a short squeeze either today or very soon.” This is a recent quote from HypeEquity founder Travis Rehl, in reference to GME stock and/or meme stocks generally.

HypeEquity is a platform which compiles social-media activity concerning individual stocks. The platform uses that data to track what HypeEquity calls “social sentiment analysis.”

There’s a qualitative aspect to the data, as well as a quantitative one.

The quantitative metric involves the mentions of a particular company on social media. And apparently, on May 18, mentions of GameStop soared by more than 1,400% by volume.

Then you’ve got the quantitative data, which involves the comments themselves.

I suspect that it’s more difficult to measure sentiment based on comments, as social media participants are sometimes sarcastic and say the opposite of what they mean.

Only One Way This Can Go

Still, we can attempt to analyze the data as long as we take it with a grain of salt.

Reportedly, data from HypeEquity showed that around 8% of comments on GME stock and AMC Entertainment (NYSE:AMC) stock included the word “squeeze.”

That’s a fairly large portion of the comments. And, while AMC stock already had a very recent price surge, “GameStonk” shares haven’t made a huge move yet.

For all we know, the Reddit traders might be circling the wagons and getting ready for something of epic proportions.

One example of a Reddit posting struck me as overenthusiastic, but not atypical.

“Remember, their portfolio full of derivatives is nothing against the power of HODLING the stock,” Mexicanred1 declared on subreddit r/Superstonk.

“There’s only one way this can go… Just up,” Mexicanred1 added.

The Bottom Line

It’s hard to form any solid conclusions here. Another GME stock short squeeze might be just around the corner, or it might not.

Rather than play a guessing game, it’s probably best just to sit on the sidelines and watch the events – or non-events, as the case may be – play out.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Article by David Moadel, InvestorPlace