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Will GameStop Stock Repeat its Historic January 2021 Performance?

In January of last year, GameStop stock provided the stock market with an unprecedented example of overwhelming trading activity. Could it be possible, a full year later, to see something similar happen again?

January 2021 was a legendary month for GameStop  (GME) - Get GameStop Corp. Class A Report and for the stock market in general. During the birth of "meme mania," GameStop shareholders saw their shares rise by more than 1,625% in a single month.

Could something similar happen again with GameStop stock now, a year after this stock skyrocketed? Let's take a closer look at recent GME events and try to draw some useful conclusions.

Figure 1: GameStop store.

Figure 1: GameStop store.

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The “MOAAS” has yet to happen

GameStop shareholders, also known as "apes," are still waiting for the mother of all short squeezes (MOASS) to happen. Within the ape community, irregularities related to a lack of transparency surrounding the trading activities of market makers, payment for order flow (PFOF), dark pools, and naked shorting, among other factors, are often brought up in major discussion forums; these factors are thought to be crucial to triggering the MOASS.

The MOASS, although unlikely, is theoretically possible. But, for it to occur, theories involving a lack of trading transparency would have to be at least partially vindicated, something that did not occur in 2021. On the contrary, a few months ago, the SEC released a report where it offered some explanation for GameStop stock’s wild trading activity in January 2021 - this report shoved a lot of conspiracy theories into the background.

SEC report conclusions

The SEC report released in October shed light on GME’s 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 by the mainstream media, (3) large volume changes and, to a lesser extent, (4) elevated short interest.

However, 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.

Little progress has since been made by the SEC in actually investigating such irregularities; however, GameStop shareholders remain positive about GME’s prospective trading performance.

What current momentum says

Even though the current market momentum is worlds apart from the momentum seen in January 2021, when there was a swell of new retail investors investing in meme stocks, GameStop shareholders have managed to keep its share price relatively elevated throughout the year - that’s something that has caught many short sellers off guard, hitting them with billions in losses.

GameStop’s short interest remains high, being 18% of the float, as of last check. That high short interest means there may still be opportunities for new short squeezes to occur; but for this to happen, the stock would need to experience large trading volume changes (perhaps again prompted by media exposure and/or discussions on popular web forums).

Just how much would volume need to be pumped up by to see another potential squeeze? In January of 2021, trading volume activity was 1,261,514,800. Compare that to an a total volume of 59,475,300 in December of 2021 or 9,976,811 seen in the first trading days of 2021 so far, and you’ll see that, to repeat history, GME still has a long way to go.

Figure 2: GME trading volume from Dec-20 to Jan-22.

Figure 2: GME trading volume from Dec-20 to Jan-22.

Some new catalyst will be necessary if we’re going to see this stock blast off again. All that being said, GameStop’s continued momentum - even if not on the level seen last January - should underline the fact that its stock remains extremely risky to short.

(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 the Wall Street Memes)