Wall Street analysts remain confused as volatile trading centered around a few stocks took place on Friday and Monday.
Fundamental analysis: “WallStreetBets” wreak havoc in stocks
It seems that Reddit’s subforum “WallStreetBets” has facilitated extremely high volatility in certain stocks. This space is used by retail investors to discuss investments and promote certain stocks.
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“What we are seeing is an interesting clash between retail investors and the big institutions,” said Delano Saporu, founder of New Street Advisors Group. “The cheerleading and strong emotions from both sides is creating an environment of emotion-based investing.”
They intentionally picked stocks that are attracting huge selling interest, in order to create the so-called “short squeeze”. This process takes place when the demand outweighs supply as sellers are covering their positions and exiting the market.
“Generally speaking, stocks with high short interest have been some of the top performers this year,” analysts at Bespoke Investment Group wrote in a note.
As a result, it seems that short-sellers have lost billions in a matter of days as they were forced to liquidate their positions. According to a report, short-sellers lows around $3.3 billion this year, with almost half of this amount taking place on Friday.
Bed Bath & Beyond downgraded
Bed Bath & Beyond (NASDAQ: BBBY) stock price is trading in an extremely volatile manner in the past few days. Shares are up about 80% this year with analysts confused given that there are no new fundamental catalysts. As a result, the stock received two downgrades today as valuation is no longer attractive.
UBS analyst Michael Lasser moved to downgrade the stock to “Sell”.
“With BBBY shares up 73% YTD, our call is to take profits. The recent move has tilted the risk-reward to the downside,” Lasser wrote in a note. In his own words, the BBBY stock “simply doesn’t account for the risks” anymore.
In a similar fashion, Raymond James analyst downgraded the stock to “Market Perform” from the old “Strong Buy” rating.
“Specifically, BBBY is up ~73% through the first ~15 trading days of 2021, without any meaningful change in the retail environment or fundamentals of the business (versus a month ago). Yes, results have showed progress in comps and gross margin, but BBBY still remains a “prove me” story, especially as the industry starts to comp against elevated home related spending due to COVID-19 in a few months. With the environment roughly the same, the recent stock surge is more a result of a short squeeze against highly shorted retail names (see GME and AMC).”
Shares are now trading at $32.50 after hitting a four-year high at $47.73 yesterday. Buyers are trying to force a weekly close above the confluence of moving average lines around the $41.00 mark.
GameStop frenzy continues
GameStop (NYSE: GME) is one of the hottest stories in the stock market today. Shares of the video game retailer soared nearly 700% on extremely strong buying interest and a short squeeze.
GameStop stock price trades above the $100.00 mark at the moment, despite the fact that the median Street price target for GameStop is $11.96.
“There has been a queue of new short-sellers wanting to get short exposure in GameStop after its recent run-up,” Ihor Dusaniwsky, the managing director of predictive analytics at S3, said Business Insider.
Shares were trading mostly around the $20 handle before exploding higher on Friday and Monday. Today alone, the GameStop stock price is up over 40%.
AMC is another leading “short squeeze” candidate
Despite the fact that cinema stocks are trading glued to the bottom for months given the state of their industry amid the pandemic, it seems that buying interest in AMC Entertainment (NYSE: AMC) is still high. Last week, shares of AMC soared over 50% before adding a further 25% yesterday.
This way, AMC share price is up nearly 100% since Thursday as retail investors force short-sellers to liquidate their positions. Today’s high of $5.19 is the highest the stock traded since September last year.
In addition, inventors liked that the bankruptcy talk seems to be off the table, in the short-term at least. The company announced it managed to raise $917 million in debt and equity.
“Based on a variety of assumptions, including future attendance levels, the company estimates that its financial runway has been extended deep into 2021,” AMC said in a statement.
“AMC also is presuming that it will continue to make progress in its ongoing dialogue with theatre landlords about the amounts and timing of owed theatre lease payments.”
Summary
An army of retail investors has forced short-sellers to abandon their positions in certain stocks, paving the way for extreme volatility and sharp market moves on Friday and Monday.
