The “short squeeze saga” with GameStop (NYSE:GME) stock is coming to a close. Between brokerages like Robinhood implementing purchase limits and squeezed short-sellers covering their positions, the factors that allowed GME stock to rally from around $20 per share to as much as $483 per share are no longer in play.
Since hitting its record highs, shares have since pulled back more than 70%. Those who got in early may be able to cash out. However, those who got in well after the shares entered triple-digits should brace for impact.
Yes, short interest remains relatively high, recently reported at about 39%. But, as retail speculators rush to take profit, the shorts are no longer in as much of a bind as they were just a few trading days ago. As a result, shares will likely head back to prior prices, at around $15 to $20 per share. That’s potential downside of over 90%.
This may not happen right away. It may take weeks or even months for the dust to settle. But the writing is on the wall: if you own GME, get out pronto. And stay away if you missed first phase of this historic squeeze.
GME Stock: Why the Party’s Over for Speculators
Despite many on Reddit’s now infamous subreddit, r/WallStreetBets (WSB), vowing to “hold the line” with “diamond hands,” it’s clear that many small investors who got in early have already taken profit. And, while this has been touted as a tale of retail investors beating the pros at their own game, unfortunately it may be the small investors that get left holding the bag once it’s all said and done.
How so? Posters on WSB may be considered “retail investors.” But, as more active participants in the market, chances are they are much more experienced players than you’d think, profitably moving in and out of stock.
On the other hand, the scores of small investors who dived into GME stock once it started making headlines may not be as fortunate. By the time they bought in, the short squeeze was already coming to a close.
That’s not only because prominent shorts like Melvin Capital and Citron Research covered their positions at a heavy loss. It’s also due to Wall Street itself taking action, clamping down on the mania. As you may know, major platforms like Robinhood, TD Ameritrade and Interactive Brokers (NASDAQ:IBKR) placed restrictions, too. That restricted trading in GME stock, as well as other heavily shorted securities like AMC (NYSE:AMC) stock.
As a result, this squeeze will continue to unravel. It’s all but inevitable that the shares are heading back towards prior price levels. And that could mean big losses for those who don’t get out in time.
However, don’t be too upset about missing out on the ground floor with this now-passed trade. As retail investors move out of GameStop and into other plays, new opportunities are starting to open up.
Look Elsewhere for Trading Opportunities
Whether you profited from this short squeeze or not, it’s time to move on. Fortunately, as the door on this opportunity closes, a new window may be opening up for other potentially profitable moves.
What am I talking about? On Jan. 28, InvestorPlace Senior Investment Analyst Luke Lango detailed more than a dozen short-squeeze stocks with big runway. These are heavily shorted names with other factors working in their favor. One in particular — the streaming and online gambling play FuboTV (NYSE:FUBO) — has already started to take off again.
Beyond the heavily shorted stocks, there are also many low-priced picks that could see big moves in the near-term. For example, penny stock Sundial Growers (NASDAQ:SNDL) is an interesting pot-legalization play. Admittedly, on Jan. 31, I did argue that interest in that stock could fall “to the back-burner” soon. But, if the short-squeeze trade ends sooner than expected, we could see retail money return to this name.
So, the party may be over for those profiting from the mad rush into GME stock. For those with a healthy appetite for risk, though, there are other picks out there.
Bottom Line: Avoid GameStop
A few days back, shares of GME stock were shooting the moon. Now, though, Gamestop is headed back to earth — and fast. Like I’ve said above, this doesn’t guarantee shares will return to prior price levels immediately. But the drop seems inevitable.
So, make no mistake — the majority of investors who got into this name after the story broke will experience heavy losses. With that in mind, cash out now if you own it and avoid it completely if you don’t. There are better trading opportunities opening up on the market, so it’s best to stay away from GME stock.