GME - Short Sellers Beware! TSLA and GME set the stage
When opportunities surface Wall Street pays attention. Investors are greedy, and when they see an opportunity to make money investors not only try to maximize their results but they try to replicate the opportunity as much as possible too. Recently, that opportunity has been to cause short Sellers to cover their short positions. The result has been massive increases in share prices, arguably far beyond fair value, but the action is very profitable for those who trigger the rallies.
This practice began last year with Tesla (NASDAQ: TSLA). TSLA was one of the most aggressively shorted stocks until August of last year. Then, suddenly, the shares started to surge and short covering caused that to be exacerbated. Wall street witnessed the power of forcing short Sellers out of positions, and although valuation in TSLA has increased far beyond any definitions of fair value that exist, price action matters most, and the shares have increased 350% since the short covering rally began. That is a massive profit for any firm that may have triggered the short covering rally.
The action in TSLA set the foundation for what we are seeing now in Gamestop (NYSE: GME). Shares of GME have increased by 600% since the beginning of the year, less than a month, due to short covering. The short covering rally was infused by aggressive buying which triggered a programmatic short covering rally, and huge profits for any firms who triggered that rally too.
Importantly, neither of these moves is supported by the fundamentals, the share prices to not reflect fair value for the companies, but they were hugely profitable for any firm who participated in influencing the short covering rally.
As a result, firms are now looking to replicate that opportunity. Hedge Funds are now actively seeking out the most heavily shorted stocks on the market to find the ones that are most susceptible to a short covering rally like the ones that took place in TSLA and GME.
If you are an aggressive short seller, beware! Ligand Pharmaceuticals (NASDAQ: LGND) and Bed Bath and Beyond (NASDAQ: BBBY) may be on some radars, as might Oil Drillers and counterparties.
Stock Traders Daily is prudently distilling these anomalies to try to find the best opportunities. Trading reports for TSLA, GME and all other candidates are available to subscribers now.