The market participants experience similar emotions at the various parts of the cycle and the technical factors (borrow rates, margin requirements, etc.) follow a similar arc. Given that human behavior never changes, it is reasonable to assume that these short squeeze episodes share some commonalities. Rather they are driven by human behavior and technical factors. It should be clear to everyone by now that short squeezes are not based on company fundamentals.
It took a confluence of events to occur at exactly the right time to create a perfect storm.Ĭhart 1: GameStop Short Interest as % of Float This squeeze could have happened at any time, but it didn’t. DeepF**Value/RoaringKitty) has been posting about GameStop since September 2019.
GameStop has had a massive short interest in the stock for the past 10 years and Reddit rock star, Keith Gill (a.k.a. Short squeezes are not well understood by market participants or academics because they are rare, hard to quantify, defy conventional wisdom, and are impossible to predict advance. This post will look at the previous acute short squeezes that we’ve witnessed in 20 years of participating in the stock market and what it could mean for GameStop and the rest of the squeeze plays. While parabolic moves feel great, they don’t last forever and at some point, you need to get off the ride and lock in the gains. That prevailing wisdom got flipped on its head recently when the WallStreetBets crowd ignited perhaps the greatest short squeeze in history with GameStop ( NYSE: GME). The past two weeks notwithstanding, it has typically been a poor strategy to invest in stocks with high short interest. A long time ago in a galaxy far, far away it was generally understood by investors that stocks with high short interest underperform over time.
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