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GameStop Stock: Major Catalysts In Sight Again

GameStop stock’s popularity on the main Reddit forums has spiked, as GME has rallied 40%-plus since last month. This could be the self-reinforcing bullish cycle that investors like to see.

GameStop stock  (GME) - Get GameStop Corp. Class A Report is back in the spotlight. Shares have been the most discussed on the main Reddit forums lately. GameStop has traded 42% higher in the past month, adding to an astounding rally that is now above 1,300% for the year.

Figure 1: GameStop store facade.

Figure 1: GameStop store facade.

The same catalysts mentioned on the SEC report that provided clarity on GME’s trading activity in January 2021 could be at play here once again.

SEC report conclusions

The SEC report released in October shed light on GME trading activity in January 2021. The driving forces behind the stock having skyrocketed to a high of around $350 per share in Q1 included (1) frequent Reddit mentions, (2) significant coverage on mainstream media, (3) large volume changes and, to a lesser extent, (4) elevated short interest.

The “ape thesis” on stock market irregularities did not go unnoticed by the SEC. The agency mentioned that it is still identifying “areas of market structure and regulatory framework for potential study and additional consideration”. These include (1) forces that may cause a brokerage firm to restrict trading; (2) digital engagement practices and PFOF, i.e. payment for order flow; (3) dark pool trading; and (4) the market dynamics of short selling.

Reddit mentions and GME popularity

GameStop stock is back as having the most Reddit mentions (see below). Popularity online tends to increase media coverage, and both factors have been highlighted by the SEC as major catalysts for GME stock having surged in January.

Figure 2: Trending stocks on Reddit on November 23.

Figure 2: Trending stocks on Reddit on November 23.

Large volume change is another item to keep in mind. To be fair, current trading volume is still far from early 2021 levels. But notice below that October saw an increase of nearly 10 million more shares traded compared to September.

Figure 3: GME historical price data and average volume per month.

Figure 3: GME historical price data and average volume per month.

Shorts keep playing with fire

GameStop’s short interest is still 15% of the float, according to Yahoo Finance – anything above 10% is usually considered high. This ratio suggests that, not unlike “HODLers”, short sellers have not given up on this stock yet.

Short sellers have already lost billions of dollars this year. Yet, data from S3 partners suggests that short interest has not reduced materially, despite the October rally in GME.

Figure 4: GME's short interest vs. share price in September/October.

Figure 4: GME's short interest vs. share price in September/October.

Sure, the SEC report disagreed with high conviction “apes” that short selling was the major catalyst behind GME’s January price surge. Still, the agency acknowledged that elevated short interest was one of the several factors that favored the bulls.

In conclusion

Some of the same factors that pushed GameStop stock substantially higher in January 2021 may have been at play in this most recent rally: increased popularity online, higher volume traded and elevated short interest. This could be good news for GME bulls.

As always, Wall Street Memes encourages caution when trading such volatile stocks as GME. In the case of so-called meme stocks, volatility can even increase when share price reaches for the peaks, as it may be the case here – GME, for example, is down 8% for the day as of the writing of this paragraph.

Twitter speaks

GameStop stock is back on top of the Reddit charts, as shares have rallied by more than 40% since last month. What is your opinion about GME going forward?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)