The last two weeks haven't exactly been ideal for the major US indices. Since the end of August, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 have been down 1.54%, 0.93%, and 0.51%, respectively. The decline in these indices is all the more striking as they have followed an impressive run of record highs and seemingly inexhaustible market bullishness.
In times like these, perhaps it is good to remind ourselves how far the indices have come in the year to date. If anything, reminiscing about the indices extraordinary gains in 2021 should help us contextualise the minor misfortune befalling stocks and indices in September.
It may also be appropriate to remember that September has never been a great time for stocks. One example frequently quoted is that Since 1945, the S&P 500 has closed lower 55% of the time during September. More recent history has been kinder to the index, recording a 25% loss rate in four September since 2016.
It may be too soon to call September 2021 for the bears. There is still time for the market to turn things around. As we ride out the rest of the month, let's revisit some of the most significant share price gainers of US-listed companies thus far in the year. Bear in mind; some stock price gains may be the result of steep losses the year before or other anomalies in the market.
aTyr Pharma shares have risen 60.8% in the past week after it reported positive results in a trial of its lung disease (pulmonary sarcoidosis) medication. The Californian based Biotherapeutics Company share price rise is even more impressive from the vantage of a month, up by 81.7% in this time frame.
Notable mentions; Uranium Energy (NYSEAMERICAN: UEC) up by 26.6%, Aloca (NYSE: AA) up by 13.0%, First Solar (NASDAQ: FSLR) up by 9.7%.
ESG investors will be disheartened to hear the Largest Gainer for the past 90 days has been Peabody Energy Corp. Peabody Energy is a 'coal producer', one of the largest in the world at that, with mining operations across the US and Australia. The Company has contracts to supply Coal to electricity generators, and steel manufactures around the globe.
Since August, the price of Coal has soared due to limited supply and improving demand from developing Asian nations. These factors led to improved finances for the Company, resulting in BTU rising by 83.6% since mid-June.
For interest sake, Coal is currently trading at $177.5 per metric ton, up from $40.40 per metric ton at the end of August.
Notable mentions: Chipotle Mexican Grill (NYSE: CMG) up by 37.6%, Advanced Micro Devices (NASDAQ: AMD) up by 29.9%, and Nvidia (NASDAQ: NVDA) up by 25.3%.
Perhaps this was an obvious choice for Largest Gainers since February 4 (the first trading day of 2021). AMC, up by 2,200%, after catching a second meme-stock wind. Its popularity as a short squeeze stock has risen to be perhaps equal to that of GameStop (NYSE: GME). It is arguably so because it is "cheaper" per stock and owning one whole AMC stock feels more satisfying than owning one-fourth of a GME.
Speaking of which, the only stock that could give AMC a run for its money is GameStop. Up by ~1,000%) YTD, GME has battled its way up to from US $17.25 to, as of writing, US $204.5 per share.
Notable mentions: Veritiv (NYSE: VRTV) up by 329.1%, Dillard (NYSE: DDS) up by 250.5%, Macy's (NYSE: M) up by 89.9%.
Cryptocurrency is having a material impact on traditional finance, stocks, and markets more than ever. It is arguably no longer an isolated ecosystem, divorced from anything other than indeterminable mania and depressions.
Supporting this supposition are the developments in the crypto space just this year; several crypto-backed ETFs became tradable in North America, Bitcoin appeared on the balance sheet of several Fortune 500 companies, and crypto-exchanges have achieved public listings. Speaking of the devil, the Nasdaq listed Coinbase Global Inc (NASDAQ: COIN) has reported its earnings today, comfortably beating its earnings expectations.
Fittingly, I plan to mark the occasion by crafting one of my periodical recaps of the crypto space.
The largest crypto exchange in the US, Coinbase, has reported Q2 earnings above expectations (total revenue of US$2.2 billion vs US$1.85 billion expected). Coinbase’s revenue growth is impressive considering that since the Company’s last earnings report, Bitcoin and its ilk have taken a nosedive in price.
Interestingly, Coinbase was able to increase its monthly user base and the value of processed transactions. All the while, the value of the crypto assets that were being traded declined by approximately 20%. In reward, Coinbase stock climbed 0.82% in afterhours trading, after it released its earnings report (however, the stock dropped 3.85% over Tuesday trading).
Further proving my point of Cryptos infiltration of mainstream finance, Coinbase reported that more than 9,000 financial institutions are included in their client base.
AMC has announced, alongside its earnings report, that it will begin accepting Bitcoin by the end of the year. I suspect the announcement was for two important reasons. The first, to help distract from the bad earnings report. Admittedly, the theatre lost less than expected, but the report was still less than desirable (US$0.71 vs US$0.94 expected loss per share). The second reason is to appeal to its meme investor base (like GameStop’s foray into NFTs). However, unlike GameStop’s foray into NFTs, AMC move into Bitcoin is far more practical and has the potential to pay off in the long term (predictions of Bitcoin reaching 100K are rearing their heads again). As of writing, Bitcoin is comfortably above 45K, after spending the beginning of August sub-40K.
The amendment sought to clarify language regarding who would have to abide by the new reporting requirements.
As it stands, Crypto advocates believe the tax rules are too broad and would lead to some entities being unable to comply because they are not privy to the information that is required to be reported. Ultimately, the US cryptocurrency space will be profoundly negatively impacted. This is an opinion shared by Coinbase CEO Brian Armstrong and Kraken CEO Jesse Powell, who believe cryptocurrency firms are likely to shift overseas in response.
Approximately US$600 million worth of Crypto has been hijacked from the Defi platform, Poly Network. The hackers siphoned off Ethereum, Shiba Inu, Wrapped Bitcoin and USD coin, among others.
While the coins are likely irretrievable, some measures can be taken to ensure that the hackers don't personally profit from the attack. Poly has called on the miners to blacklist funds coming from the hacker's address. I'm unsure if such an action would set a precedent. At any rate, decentralised projects have been known to roll back transactions made during hacks. In this instance, the founders of Tether, a decentralised coin, has already stepped in and frozen US$33 million worth of coins associated with the hacker's addresses.
At the close of the US markets on Wednesday, AMC Entertainment Holdings Inc (NYSE: AMC) was trading at US$ 62.55, up by 95%. In after-hours, another 5%+ gain is likely.
The growth in AMC's price began in earnest last week, with the price rising from US$12.38 to US$26.12. This week has been just as intense, with the previous two day's booking noteworthy rises of 17% and the 95% mentioned above.
GameStop Corp (NYSE: GME) also experienced a considerable jump in price over the same time frame, up by 56.5%. As of Wednesday closing, the original meme stock was trading at US$282.24.
While on its way to pre-pandemic patronage, the world largest Cinema company is undoubtedly not inspiring investors purely with its fundamentals. Rather, I suspect that investors are inspired by the recent media reports detailing the phenomenal losses that short sellers are continually racking up.
On 26 and 27 May, it was reported that GME and AMC short sellers lost $618 million and US$754 million on respective days, as the meme stocks rallied. Last week alone, AMC short sellers lost US$1.2 billion. These numbers are incredibly intoxicating for short squeezers.
Is it just me, or is there more mainstream reporting of the short sellers' daily losses more frequently?
While I believe there is an uptick, I don't think these reports were the initial catalyst of the current run-up in price seen in GME and AMC. However, I believe it is spurring meme investors to increase their positions in the stocks and push past the 'natural' short squeeze price of the stocks.
If what short squeezers believe will eventuate in the mother of all short squeezes (MOASS), the extra price paid for each stock right now will be immaterial to them. Likewise, if short squeezers can inflict a little more pain on hedge funds along the way, then the cost incurred for another turn of the screw appears to be entirely worth it.
Please note, BlackBull Markets do not offer the option to trade AMC or GME. However, we do offer exposure to the major US indices and stocks such as APPL, TSLA, MSFT, etc.
The Mother Of All Short Squeezes, or MOASS for short, is how the impending once-in-a-lifetime squeeze of GameStop Corp shorts is being referred. And rightfully so. Everything surrounding this event is historical, and whatever eventual short squeeze prize eventuates, whether shares are selling at $1,000 or $1 million, it will not negate the importance of the event. It will still be the MOASS, a blueprint moving forward, and a necessary counter for imprudent short positions.
If, or when, the MOASS occurs, and the proof of concept is validated, I predict that we will immediately see short squeeze attempts on other heavily shorted stocks.
Attempts were made in the past to squeeze the shorts on other heavily shorted stocks. But these felt like half-hearted attempts and too early a distraction from the GameStop Squeeze, which had not worked itself to a solid conclusion.
In the heat of the February squeeze frenzy, AMC Entertainment Holdings Inc, Koss Corporation, BlackBerry Ltd, spiked by 300%, 1,800%, and 240%, respectively, before incurring significant drops. The periphery squeezes have all lost significant interest since those heady days at the beginning of the year. Four months later, nothing has been able to match the stamina maintained by GameStop squeezers. There has, of course, been fluctuations in the GME price, but a strong pool of squeezers has always remained, diamond-handed as they say.
It would not be too controversial to speculate that if the MOASS comes to fruition, money will immediately begin flowing into other heavily shorted stocks. Veteran and virgin squeezers will want to recreate the success of the MOASS and squeeze more from short sellers across a range of other stocks.
I will be keeping an eye on AMC, KOSS, and BB as the potential first responders to the MOASS. But squeezers might also turn their collective interest toward Nokia Oyj, Bed Bath & Beyond Inc, and Discovery Inc.
But for now, all eyes are on GameStop. The concept will have to be proven over there before interest creeps into other heavily shorted stock.
In the early 1600s, Tulips first arrived on the shores of Holland from Turkey. The flower was exotic, beautiful, and nothing like any other flower that grew in Holland at the time.
Like Turmeric was to the UK before exploring India, Tulips became an extremely exclusive and highly luxurious status symbol. It was stated that "it was deemed a proof of bad taste in any man of fortune to be without a collection of tulips." Tulips became a thing to have to "keep up with the Joneses" at the time. Therefore the middle class started to collect tulips to portray this image of wealth.
This demand and love for tulips inflated the cost of tulips bulbs, with the rarest tulip bulbs in the year 1636 going for $750,000 in today's money. However, many Tulips ranged from $50,000 - $100,000. At this point, Mania ensured. Individuals who held extremely rare Tulip Bulbs saw their assets increase in value just by having it. People believe the stock price could never go down and that "the passion for tulips would last forever."
Individuals started buying tulips on leverage and began to use derivatives in hopes that they would profit from borrowed money. However, as confidence started to waver, Tulip owners started offloading as fast as possible. This meant people with derivatives were selling at a lower price they bought it at, desperately trying to offload so they could pay their creditors. By 1638, Tulip Bulb prices returned back to normal.
Does this sound like a familiar story? GameStop, an American video game retailer, traded below $6 for most of 2020. It currently sits at $347. Is this the Tulip Mania all over again? Not quite.
The context of how we came about to a company that had a short float of over 80%, reversing to generating 1,800% in 30 days, is a convoluted one. Long story short, a Reddit community of retail traders on the subreddit called WallStreetBets thought of a simple but genius way of pumping up the price on stocks relatively cheaply: Induce a short squeeze.
With over 80% of Gamestop's stock short, the WallStreetbets community decided to purchase near-dated call options to induce a short squeeze while continuing to buy more call options, pushing the price higher and higher. This is akin to what Jordan Belford did in the Wolf of Wall Street and deceiving investors. However, the difference is that this time, not one person can be put to blame. Plus, its not illegal to speculate. It's like a social pumping and dumping scheme using options – without the dumping. The question arises, why?
I believe I am young enough to understand why this is happening and understand why older, more seasoned institutional investors don't. The reasoning also shows why it's quite different from Tulip Mania.
The unique concoction of cheap access to the equity and derivative markets, combined with lockdowns & stimulus checks and the rise of social media boards such as Reddit, has fueled young, money hungry, and humored retailed traders to enter into these risky trades because it's merely funny. No fundamental analysis is involved, just fun.
That's the difference between the Tulip Mania and Gamestop Mania – Tulip investors were doing it for the prestige, with the benefit of wealth. However, with Gamestop? The Redditors are doing it because it's humorous – it's funny to them buying a near-broke stock and pumping it up, even if they lose all their money. It is almost like the capital they inject into the market is the cost of entertainment.
There is no doubt a lot of the retail traders investing in Gamestop will lose money. However, that's the fun of it.
My brother was caught in the GameStop Mania – I woke up early for work this morning and saw him wide awake on his trading account buying these heavily shorted stocks "at times where me and my friend thought it was the funniest."
Will we see more of this in the future? Probably. Will people continue to lose money? Most likely. Will some people make a lot of money? Of course. Is this the financial world we live in? Yeah, it is.
I believe that investing should be accessible to everyone and anyone willing to put their money to work. Many people share this idea. That's why low-cost brokerage started to become popular. However, the bi-product of this is that phenomena like this eventually occur when retail traders throw away any fundamental analysis and game the system that large and rich institutions help create. This phenomenon is the antithesis of "Markets can stay irrational longer than you can stay liquid," however, this time, the market is a bunch of retail traders, and the "you" are the large, fundamentally drive hedge funds that are short.
With that said, Fundamental analysis will slowly come back into play. The Markets will gradually become rational again – the retail traders' confidence will waver, and derivatives will slowly come due. Prices will once again come crashing down as they did with Tulips in 1638. That's where the comparisons continue with the Tulip mania and this GameStop mania.
However, Tulips were only one exotic flower that the citizens of Holland could get their hands on.
There are many stocks out there. The question isn't when is GameStop going to crash – the question is, What stock is next?