GameStop shares experienced a surge on Monday and Tuesday, followed by a decline. Was this related to ‘Roaring Kitty’ posting on X and the herd mentality? Many in the trading business refer to this phenomenon as “pump and dump,” which can sometimes be illegal depending on the execution. The current electronic marketplaces may be more efficient than before, but they are still susceptible to the same irrational behaviors seen in human-traded markets.
The recent trend of “meme stocks” has been particularly intriguing. These stocks are often undervalued with low trading volume and high short interest. Examples include AMC Movie Theaters and GameStop. Meme stocks are known for their volatility and unpredictable movements. In 2020, a Reddit board called r/wallstreetbets caused a hedge fund to collapse after GameStop’s dramatic rally.
Roaring Kitty, a prominent figure in this movement, recently reemerged on X, sparking renewed interest in GameStop. The stock’s price surged after earnings, reaching a high of $41.19. However, the rollercoaster ride continued, with the stock experiencing significant fluctuations. The recent sharp decline in GameStop’s shares suggests a possible short squeeze scenario.
Overall, the market behavior surrounding GameStop reflects a mix of rational and irrational factors, making it a challenging situation to analyze. The future trajectory of GameStop’s stock remains uncertain, with fluctuations likely to continue.
That is the reason why the stock is experiencing a sell-off.
Market movements, whether up or down, often impact stock prices. Looking at this week, the S&P500 saw a slight decrease on Monday, a slight increase on Tuesday, a sharp increase on Wednesday, and a decrease on Thursday. GameStop only deviated from the S&P500 on Monday.
Why do these shifts occur?
These movements happen because people tend to follow the crowd without thinking critically or objectively. They seek the path of least resistance. This behavior is reminiscent of the trading pits on the old human trading floor. However, in today’s electronic trading environment, these movements can escalate rapidly. With influencers like Roaring Kitty having a large following on X platform, information spreads quickly through social media. Electronic trading allows for rapid accumulation and dumping of positions, unlike the slower process in human trading platforms. Additionally, much of the trading occurs off-exchange in dark pools, making it easier to conceal large positions. Even renowned investors like Warren Buffett withhold their positions until after trading.
Following trends is not a new phenomenon. Many individuals have followed advice during times like COVID-19 without critical thinking. Similarly, electronic traders may flock to a low-volume stock based on one person’s recommendation without verifying the information.
Is intervention necessary? No. The market will self-regulate. While free market capitalism can be chaotic, it is still superior to centralized decision-making.
Opinions expressed in this article are those of the author and may not reflect the views of The Epoch Times.
