HomeBusinessGameStop stock drops 35% as meme rally fades

GameStop stock drops 35% as meme rally fades

GameStop (GME) shares fell about 35% on Wednesday as a recent rally among meme names faded. The video game retailer’s shares are emerging from a two-day short squeeze. GameStop shares are up more than 180% in the previous two sessions.

AMC (AMC) also fell more than 25% on Wednesday after the theater chain operator’s shares rose 95% over the past two days.

Other heavily shorted stocks that fell on Wednesday were SunPower (SPWR), Beyond Meat (BYND) and Children’s Place (PLCE).

GameStop shares rose Monday following the re-emergence of Keith Gill, also known as “Roaring Kitty,” whose bull case on GameStop fueled the 2021 meme stock rally.

In a note to clients, Nicholas Colas, co-founder of DataTrek Research, wrote that this recent trading action “feels like an echo of early 2021, when this account fueled a vicious short squeeze in GameStop.”

Colas noted that the move in 2021 was a lot bigger than what we’ve seen so far this time, with GameStop shares surging 1,500% in January 2021 before losing most of those gains.

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The pain short sellers endured during the original meme stock rally three years ago hasn’t deterred bets against these companies in recent days.

Keith Gill, known on social media forums as Roaring Kitty, testifies during a virtual hearing at GameStop in Washington, February 18, 2021. The man at the center of the meme stock frenzy during the pandemic returned to the social platform for the first time once in three years on Sunday.  (House Financial Services Committee via AP, file)

Keith Gill, known on social media forums as Roaring Kitty, testifies during a virtual hearing at GameStop in Washington, Feb. 18, 2021. (House Financial Services Committee via AP, file) (ASSOCIATED PRESS)

Short interest in GameStop has remained strong since that meme rally, data from S3 Partners showed, with nearly 24% of the float.

GameStop shorts fell $1.36 billion on Tuesday after losing nearly $900 million on Monday.

“We see continued short-covering due to the rebirth of the meme trade,” said Ihor Dusaniwskydirector of S3 Partners.

On Tuesday, Wall Street strategists warned that the new burst of enthusiasm is far from the frenzy of three years ago, with “low” chances of a repeat in 2021.

GameStop shares tumbled on Wednesday, indicating the rally in meme names is fading.  (AP Photo/John Minchillo, File)GameStop shares tumbled on Wednesday, indicating the rally in meme names is fading.  (AP Photo/John Minchillo, File)

GameStop shares tumbled on Wednesday, indicating the rally in meme names is fading. (AP Photo/John Minchillo, File) (ASSOCIATED PRESS)

The meme frenzy of three years ago captured national attention and attracted an army of retailers during the pandemic lockdowns.

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“I don’t look at this at all the way I did in 2021, when it was almost a transformative moment, dragging tens of millions of people back into the market,” said Tom Sosnoff, CEO of palatablelive, an options and futures trading platform.

YouTuber Matt Kohrs, who has held positions at GameStop and AMC in the past, said Tuesday that the crucial aspect of “the little guy versus the big guy” during the short squeeze of 2021 still holds true today.

“The perception is that the entire system is set up and isolated for the benefit of the powerful elite. GME is the symbol of the populist movement against that concept,” Kohrs said.

“The only real change I see from a psychological point of view is that I’m not cooped up inside anymore,” he added.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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