GameStop shares whipsaw in echo of January frenzy

GameStop has taken investors on another wild ride. Photo / Getty Images

Shares in GameStop went on another wild ride on Wednesday, first shooting higher and then crashing in a repeat of the explosive trading frenzy from the start of this year.

The shares surged as high as $348.50, marking a 150 per cent rally on the week, before tumbling back towards $200 as more than 45m shares traded hands by 1pm on Wall Street. The New York Stock Exchange halted the stock several times because of the volatility.

This week's rally still left the shares far shy of their peak near $483. But a gain of more than 1,000 per cent so far this year reflects the enduring influence of have-a-go investors on pockets of the public markets.

"Maybe it was worth more than $10 per share," short seller and founder of Muddy Waters Research, Carson Block, told CNBC on Wednesday. "But come on. This is a sign that there is some serious dysfunction in our markets right now."

In January, GameStop's rally stemmed largely from a concerted and successful effort by amateur traders to crush negative bets on the company.

Some of the latest surge may be more down to the video game retailer's prospects. On Monday, Ryan Cohen, co-founder of pet products retailer Chewy, was appointed to help oversee GameStop's transition towards ecommerce. Cohen had previously began building a large stake in GameStop in September. The company announced last month its chief financial officer would step down on March 26.

But some analysts remain unconvinced. "The fundamentals of this company are terrible and they are not getting better," said Anthony Chukumba, gaming industry analyst at Loop Capital.

Analysts said the tussle between funds betting against the stock and amateur traders betting on a climb was still playing out.

"The shorts cannot help themselves and continue to press every time the stock goes materially higher than $40 or so," said Wedbush analyst Michael Pachter. As the prices rise, more shorts continue to enter GameStop, he added. "It's a vicious cycle for the shorts and a virtuous cycle for the longs."

Unlike January, retail buyers may now be playing a smaller role. Vanda Research calculated that retail buying of GameStop shares was 10 times larger in late January than the $8m conducted on March 9. That meant retail traders could not account for the scale of the latest rally, the research firm said.

"This is more than retail," said Viraj Patel, strategist at Vanda Research. "This looks like an institutional short squeeze rather than retail buying."

Redditors also cast doubt on the idea that a new wave of retail traders were driving the stock again. "On Reddit right now, people are just holding the stock," said one longtime member of the r/WallStreetBets Reddit group who goes by the username u/Aaes.

"If it goes to zero, than so what?" the user said. "GameStop has become more of a principled investment than an investment you make with your head. People are fed up with the market controlled by the 1 per cent."

- Financial Times