The meteoric rise in GameStop’s stock price is being called “little pressure” by most, but it’s not what’s happening, says a short-term and market interest expert.
Why it’s important: This could mean that, if and when the strait is reached, the price of GameStop could rise significantly above current levels.
What is happening: Short sellers have accumulated on GameStop as a result of the meteoric rise in the stock price, not the other way around, Axios Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, told Axios.
- Over the past year, the number of short-term shares has increased by 12%, while total dollar at risk has increased by 1,900%, according to S3 data.
- This is a sign that the big bets of hedge funds and institutional investors are coming, which means it hasn’t even started.
How it works: In a typical short squeeze, short sellers have sold the shares and “rented” the shares with the intention of buying them after the stock price fell. But they are “squeezed” if the price goes up too much and are forced to exit the trade by buying the shares at a higher price.
- This helps increase the value of the shares so that short-term sellers join the momentum and drive up the price.
- But with GameStop, every time a short seller leaves the market and buys shares, they sell new short-term sellers to replace them, keeping the same downward pressure on the price, and in fact short interest increases .
That means: “This tells me what drives the market are long buyers. It’s not about a short concentration of coverage,” Dusaniwsky said.
- “If so, I would see short-term stocks plummeting. For this kind of price movement, you should see short-term interest rates interrupted.”
- “One way to see that short interest rates are not being eliminated is for the stock debt ratio to increase.
- “That means the shorts don’t come out clean.”