Is the WallStreetBets movement coming to an end?
On Friday the 22nd of January 2021, the chief of GameStop $GameStop(GME.US$ was sitting in his office unaware that the January 2021 short squeeze that may go down as the most significant ever was about to take place.
GameStop dropped 30% on Monday, the first day of February. Within the crazy week, $GameStop(GME.US$ is down 53% from its intraday last Thursday. Things went worse for $WallStreetBets(BK2555.US$ . The “meme stocks” got chopped. $GameStop(GME.US$ dropped 60% and $AMC Entertainment(AMC.US$ tumbled 41% on this Tuesday. Hump day seemed to bring some luck as $AMC Entertainment(AMC.US$ advanced 14.71% and $GameStop(GME.US$ gained 2.68% yesterday.
What about tomorrow? The following day? Next week? Will $WallStreetBets(BK2555.US$ still accelerate or decline?
Let's take a look on short squeezes in history. Maybe we can get some experiences and hints in these historical instances.
Clarence Saunders' story of short squeeze
Clarence Saunders, the founder and president of Piggly Wiggly which is a supermarket that does business in southern and midwestern America, was the first person to patent the concept of the self-serving store and founded the modern version of the discount supermarket.
In order to increase market share, Saunders announced plans to sell 100,000 new shares in the company in November 1922. The share price down to $30 from $45 because the unrelated news of a Piggly Wiggly licensee filing for bankruptcy, then Merrill Lynch and other Wall Street firms attempted a “bear raid,” shorting Piggly Wiggly stock in a bet that it would fall further.
Saunders cast the issue as good versus evil, asking potential investors, “Shall good business flee? Shall it tremble with fear? Shall it be the loot of the speculator?” as quoted in Mike Free’s Clarence Saunders and the Founding of Piggly Wiggly: The Rise&Fall of a Memphi mavericks.
The Short thing aroused an unexpected popular backlash, stirred by a resentment of “city slickers” getting rich off the “yaps,” or little guys.
To counter the shorts, Saunders borrowed $10 million on margin from a number of investors and hatched a plan to buy up all outstanding shares of Piggly Wiggly, driving the price up. The stock reached $124 on March 20, 1923—when it was suspended by the New York Stock Exchange.
The Piggly Wiggly shorts got crushed, much as Melvin Capital dropped 53% in January chiefly on its GameStop downside bets. While there were some big winners, there were also some other big losers.
But just as Saunders’s plan seemed to work to the tee, the bear raiders managed to convince the stock exchange to intervene and suspend trading in Piggly Wiggly and later grant an extension for paying up. This gave enough time for the short-sellers to access shares of Piggly Wiggly not in circulation and thus forcing Saunders to offer his shares at a steep discount.
Saunders died in 1953, his hopes of becoming the Henry Ford of supermarkets undone by an ill-fated decision to take on Wall Street.
Volkswagen' story of short squeeze
On 28 October 2008, a short squeeze on Volkswagen stock propelled this German carmaker to become the world's most valuable company, for one brief day.
The rally was initially triggered by a surprise announcement that Porsche had boosted its VW stake, which sent a slew of short selling hedge funds rushing for the exit.
In March of that year, Porsche owned 31% of VW's shares and announced that it did not intend to increase that to 75%. Lower Saxony holds 20%, so Porsche reasoned it would be too difficult and expensive to acquire basically all other shares on the market.
On 26 Oct 2008, Porsche revealed that it had increased its stake from 31% to 43%, plus 31% in options -- 74% of the shares of VW.
Problem: as of that date, 13% of the company was on loan to speculators short the stock, and 74% + 20% + 13% = 107%. So if Lower Saxony didn't intend to sell them any (it didn't), and Porsche didn't intend to sell them any (it certainly didn't), the speculators would be completely incapable of covering those short positions.
That's to say, Porsche could pretty well set its price and force the speculators to pay it. The price exploded, going from 200/sh to 1000/sh in just a couple of days.
After Volkswagen’s peak on Oct. 28, 2008, the shares fell 58% in four days, and a month later the stock was down 70% from its top, giving back most of the squeeze.
Now that the GameStop mania has started to unwind, will the stock follow Volkswagen’s path on the way down? Will you still have FOMO? Please feel free to leave your comment!
Source: Barrons
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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Somniuh :
Somniuh :
SideMoney1000 : HOLDING :)
Popular on moomooOP Somniuh:
Thememeguy : Holding til death or 1,000
anti going no where.
Dramericanjesus : coming to an end? This thing ended a week ago.
MS159 Dramericanjesus: How do you explain GME going up if they and us are dead?
J. G. : WSB will never die muthhhaffuuccckkkaaa. GME to the moon and great beyond. holding till we die! and even then, there's another 1400 check coming our way to yolo so Melvin can SMD.
Lou Blacksail : There will always be bag holders, this is a new kind of scenario. But I believe many of the initial troops finances are running out if they actually went through their plan to hold.
Kris Bay : Every squeeze ends up back to where it started, sometimes even below that.
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