GameStop prompts surge in hyper-rally after Elon Musk's tweet

WION Web Team
Washington, United StatesEdited By: Vyomica BerryUpdated: Jan 28, 2021, 09:12 AM IST
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SpaceX founder and Tesla CEO Elon Musk speaks on a screen during the Mobile World Congress (MWC) in Barcelona, Spain Photograph:(AFP)

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GameStop surged 50 per cent in extended trade after Musk tweeted 'Gamestonk!!', along with a link to Reddit's Wallstreetbets stock trading discussion group.

An epic battle is unfolding on Wall Street, with a cast of characters clashing over the fate of GameStop skyrocketing for a fourth straight day, thanks in part to Elon Musk.

Tesla founder Elon Musk, who has waged his own battle with short sellers before seeing spectacular gains for the electric carmaker, appeared to encourage the movement by tweeting a link to the Reddit forum along with the cryptic comment "Gamestonk!!" 

"Stonks" is a tongue-in-cheek term for stocks widely used on social media.


Herds of amateur investors on Reddit have long been supporters of Tesla and other hyper-volatile stocks, and their influence appears to be growing.

'Short squeeze'

The WallStreetBets followers have been on a GameStop buying spree, which not only pushes up the shares but puts pressure on short sellers to make purchases to "cover" their bets to avoid steeper losses.

This is known on Wall Street as a "short squeeze" and can result in a dizzying rally by forcing short-sellers into becoming buyers.

As a result, GameStop surged 18 per cent on Monday, another 115 per cent Tuesday and had leapt 135 per cent Wednesday. That followed a stunning 50 per cent jump on Friday.

Short sellers, while reviled by some market players, are nonetheless seen as playing an important role in the markets by providing liquidity and driving down overpriced shares. 

But at least one GameStop short-seller said he walked away from the stock after what he claimed was harassment and threats by an "angry mob."

As well as GameStop, BlackBerry, also favoured on Wallstreetbets, advanced 4.9 per cent and is up 185 per cent this year. An earlier tweet by Musk sent Etsy up almost 9% before it reversed its gains.

The surge in recent days - GameStop has increased more than seven-fold to $147.98 from $19 since January 12 - has spurred concerns over bubbles in stocks that hedge funds and other speculative players had bet would fall in value.

Trading in GameStop stock was halted for volatility nine times on Monday and five times on Tuesday.

Why have GameStop shares been so volatile?

GameStop, a well-known retail chain whose business model of selling games on discs appears to have been overtaken by a move to the internet, has been the target of "short-sellers," often big hedge funds that bet on a decline by selling borrowed shares in the hope of repaying at a lower price.

But a group of amateur investors, organizing via the online platform Reddit, has fought the trend. A group calling itself WallStreetBets, with some three million members who exchange tips and boast about beating "the system," is credited with pushing up GameStop shares and roiling the Wall Street establishment.

Some analysts have described the situation as a "nerds vs Wall Street" battle.

Jaime Rogozinski, the founder of WallStreetBets, said the movement "is able to do what Occupy Wall Street was never able to do but on a completely different angle."

"Occupy Wall Street was fed up with this saying 'It's a game we can't play, you're forgetting the little guy.' Now the little guy figured out a different way around it," he said.

The WallStreetBets forum had restricted access to those outside its 3.6 million subscribers for a few hours Wednesday evening but was again visible to the public by 0115 GMT early Thursday.

Should regulators intervene?

The extreme volatility has raised concerns about manipulation, which could lead to an investigation by stock market regulators, and has even drawn attention from the White House.

"Our economic team including (Treasury) Secretary (Janet) Yellen and others are monitoring the situation," said White House spokeswoman Jen Psaki.

"It's a good reminder, though, that the stock market isn't the only measure of the health of our economy."

Late Wednesday, the Securities and Exchange Commission said it was monitoring the activity.

"We are aware of and actively monitoring the ongoing market volatility in the options and equities markets and... we are working with our fellow regulators to assess the situation and review the activities of regulated entities, financial intermediaries, and other market participants," an SEC statement said.

Jacob Frenkel, a former enforcement lawyer with the SEC, said the situation warrants regulatory review.

One option would be "a trading pause for 10 days to ensure that all investors would have access to accurate and timely information," Frenkel said.

Senator Elizabeth Warren also called for scrutiny.

"For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price," she said in a statement. 

"It's long past time for the SEC and other financial regulators to wake up and do their jobs."