Is This A Perfect Setup For A Short Squeeze From GameStop?

Is This A Perfect Setup For A Short Squeeze From GameStop? ...

Get GameStop Corp. Class A Reportcontinues to be the target of short-sellers. At high levels of short interest that make GameStop stock increasingly difficult to short, short-sellers must be increasingly resourceful to stay alive.

Despite the fact that the stock market took place on May 25, the stock market seemed to have gained about 30%, putting a damper on short-sellers.

Is This A Perfect Setup For A Short Squeeze? Figure 1:GameStop Stock

Reuters

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Cost-To-Borrow At Peak Levels

GameStop shares rose by about 29% during the May 25 trading session. One of the reasons for the rise may have been the increase in borrowing fees that short sellers must pay to establish short positions in GME.

At one point, GME cost-to-borrow rates improved, indicating that few GME shares were available.

GME''s cost-to-borrow rates have reached their all-time highs in recent days, according to the chart below.

GameStop borrowed shares in Figure 2.

Stocksera

Shorting expenses are influenced by the use (mount of shares available to sell short), the amount available to borrow, liquidity, the amount of shares available, volatility, and other factors that may influence asset pricing anomalies.

GameStop appears to have checked a few of the above boxes, which might have prompted the key indicator to rise, and kept short sellers in check.

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More Short Squeezes In Sight?

Short squeezes, as described in the GameStops 10-K filing, are one of the biggest risks associated with the company''s stock market. It is also one of the main reasons why retail investors got into the game to begin with. However, short squeeze catalysts may lurk around the corner:

  • GameStop continues to be a strongly shorted stock, with short interest levels exceeding 20% of its rather modest float of 63 million shares AMC, for example, has a float of 513 million units.
  • Of the total float, at least 9 million shares are known to be registered on the Direct Registration System. The practice of using DRS is intended to leave retail investor shares out of the hands of brokers that can lend them to short-sellers.
  • The utilization rate in GameStop follows at over 100% for more than 70 consecutive days. If accurate, this rate implies that there are no more shares available to be lent for shorting. Keep in mind, it does not mean that short sellers cannot continue to short the stock. It means that they need to seek other resources to find available shares.
  • Finally, the cost-to-borrow rate is at its highest since the beginning of last year. With short sellers having to pay higher fees to bet against GameStop, they are naturally more vulnerable, especially if pressured by GME bulls.

The price of shares has risen in part due to the rise of retail investors'' interest in GameStop''s meme stock power, according to a SEC report. In January 2021, popularity has been the key to boosting share price.

The findings suggest that the main reasons for GameStop''s rapid rise last year were: (1) frequent Reddit mentions, (2) significant coverage in the mainstream media, (3) a large volume of shares exchanged, and, certainly enough, (4) increased short interest.

The gameStop buzz around Reddit is as robust as ever. Following May 25, the stock became the most discussed ticker on Reddit. See below.

On Reddit, stock trends are expected to rise in Figure 3.

Apewisdom

Ask Twitter

GameStop has increased by 37 percent in the last five trading days. Is there a massive rallie to start forming?

(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 Wall Street Memes)

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