(Reuters) – GameStop and other social media darlings recovered from their heavy sell-off in the previous session in quieter trading on Wednesday as investors focused on the possibility of tighter US trading regulations.
The so-called « Reddit rally », however, cooled off after the close of trading when GameStop and AMC Entertainment, the main targets in the investment forums, declined.
Bulky purchases by amateur retailers in the past two weeks following social media posts sparked a violent rally in companies that large hedge funds had bet against, including video game retailer GameStop and cinema operator AMC.
GameStop had risen to $ 483 last week, fueled by posts on the Reddit forum WallStreetBets, then dipped and briefly fell below $ 90 on Tuesday.
On Wednesday, GameStop shares closed 2.68% at around $ 92.41. They fluctuated all day but in one range while AMC stocks rose 14.71% per day after falling 41%.
After the closing bell, GameStop was down 2.61% while AMC was down 2.23%.
Some professional investors complained about the volatility, warning that retail investors who pile up could end up suffering huge losses.
« The fundamentals are known and it appears that stock prices have drifted away from fundamentals, » said Stephen Massocca, senior vice president, Wedbush Securities. « I told people just stay away, it’s dynamite and who knows when, how or where it will explode. »
Many WallStreetBets’ Reddit users admonished one another to stick around despite the large swings in the stocks.
« Hold on and buy more, » wrote Reddit user Avocadochicken93, « TO THE MOON AND BEYOND! »
Silver prices rose slightly after hitting an eight-year high on Monday, and analysts expected higher volatility even after the Reddit posts urged traders to avoid silver.
The head of the US Securities and Exchange Commission will meet with Treasury Secretary Janet Yellen and the heads of the Federal Reserve and the Commodity Futures Trading Commission on Thursday, a tax official told Reuters. The SEC is reviewing social media posts for signs of potential fraud, Bloomberg News reported, citing unnamed sources. [L4N2K94J4]
Yellen has asked to discuss volatility and promote fair and efficient markets.
Your meeting will likely « have a veiled reference to GameStop somewhere in passing, but it is unlikely to be specifically mentioned, » said Robert Pavlik, chief investment strategist at SlateStone Wealth LLC in New York.
Experts believe that the focus will be on the ever-increasing role of hedge funds and other non-banks in the financial markets.
The online brokerage app Robinhood allows investors to buy portions of shares in GameStop and AMC.
James Bullard, president of the St. Louis Fed, said frenzied trade was not the result of the Fed’s loose monetary policy.
The regulators have not yet signaled what official measures might look like. Possible goals range from the capital requirements of retail brokers to challenging the no-fee brokerage model.
This problem is global. European regulators monitor the risk that a surge in retail investors and online brokers could create bubbles that are inflated by social media, the French AMF market watcher said.
The benchmark index S & amp; P 500 closed a bit higher and the CBOE volatility index fell for the third time in a row. [.N]
« There is no great concern that this is a signal that could destabilize the entire system, » said Simona Gambarini, market economist at Capital Economics.
Other so-called « meme stocks » that caught up in the Reddit rally rose on Wednesday with headphone maker Koss Corp and home furnishings retailer Bed Bath & amp; Beyond an increase of 27.95% and 10.40% respectively. BlackBerry Ltd shares, listed in the US, rose 3.9% after falling 21% the day before.
All of these stocks also fell after hours.
GameStop, AMC, BlackBerry and Koss did not respond to Reuters’ requests for comments. Bed bath & amp; Beyond declined to comment.
GameStop named three new executives on Wednesday to help drive e-commerce, which began with the stock relocating in January.
The number of GameStop stocks shorted has increased, according to the latest data from analyst firm S3 Partners.
The retail boom caused the volume of US stock options to hit a record high of months in January. Some investors may now turn to « put options, » which are often used to protect against loss or to position declines as an alternative to short selling, analysts say.
(Reporting by Tom Westbrook in Singapore and Sagarika Jaisinghani in Bengaluru; additional reporting by April Joyner, Chuck Mikolajczak, Lewis Krauskopf and Saqib Iqbal Ahmed in New York, Nandita Bose in Washington, Susan Mathew, Eva Mathews and Uday Sampath Kumar in Bengaluru and Thyagaraju Adinarayan in London; writing by Nick Zieminski; editing by Vidya Ranganathan, Jane Wardell, Bernard Orr, Alden Bentley and David Gregorio)