How an Internet Forum Flipped the Stock Market.

Overview:

As many have already seen, the stock market today was definitely a surprise for many people with the unusual gain from GameStop (NYSE: GME), BlackBerry (NYSE: BB), AMC Entertainment (NYSE: AMC), Express (NYSE: EXPR), Koss Corporation (NASDAQ: KOSS), and Nokia (NYSE: NOK).

GameStock (NYSE:GME) performance from a 5-day period.

All thanks to a Reddit forum r/wallstreetbets. On a forum where traders and investors can communicate and highlight key tips and information on the next big investment turned into a great pay off for many of their subscribers. Many call it the “Reddit investing frenzy” Without a doubt the rise of day trading since the beginning of COVID-19 has spiked up with platforms such as QuestTrade, RobinHood, and even Wealthsimple, causing mobile convenience to trade with a touch of a button. The amount of day trading since the start of COVID-19 has been a contributing factor to the sudden spikes seen in the market lately.

r/wallstreetbets landing page on Reddit.

“The Reddit Market”:

The group known as Wall Street Bets (WSB) has grown from 1.5 million followers to 3.44 million followers within a week. How reliable is this group? Since the sharing of trade information took place, GameStop (NYSE: GME) grew more than 1,700% this year. AMC Entertainment (NYSE: AMC), a struggling entertainment company announced a $1 Billon Dollar fund just to keep business running, which was the latest target for today, January 27th, 2021. Yet, investors are looking to find the next GameStop stock which caused unusual trends as the target was aimed towards lower value stocks.

Koss Corporation (NASDAQ: KOSS), an American company that designs and develops headphones was up 480.00% by being caught in the short squeeze with other companies. Traders on the forum are reportedly purchasing a very large number of shares, which are bets made against the Wall Street hedge funds hoping the company would drop.

Thus, causing a chain of day-trading investors to hop on the wave to capitalize on the surprising opportunity made by Reddit group users.

Market Manipulation:

As this is a shock to the stock market, many Wall Street investors are demanding for new market regulation rules to be in place.

A lot of controversy has began to arise because of the actions made on the stock market which bring the questioning of the “pump and dump” situation to be a source of manipulation. As this is something that happens consistently, these spikes haven’t been seen since the dot com bubble.

Some may argue that market manipulation is bad, but others insist that the only reason why the market is the way it is, is due to manipulating the market.

https://twitter.com/AnaKasparian/status/1354463836124770304

In this tweet by Ana Kasparian, she compares the federal reserve pumping money into failing banks and corporations as being acceptable, but the Reddit group as unacceptable.

The quote below is from 15-year-old Jonathan Lebed: https://nytimes.com/2001/02/25/mag

In another, quote from a 15-year teenage who talked about stock manipulation in 2001, from Michael Lewis’s story states how there would not even be a market without manipulation because of the shifts and trends providing changes to pricing.

The cause of the spikes has sparked another debate on whether or not the market manipulation is really manipulation, or whether it is bad or not.

Social Media vs Traders:

U.S. equity markets yet again fail to close ahead of social media influenced stocks. In 2020 millions of new investors have entered the stock market with RobinHood alone seeing an increase of 3 million active users since March. With grown popularity in the subreddit r/wallstreetbets, this has led to many new and young investors to believe that investing in stocks with high short interest is an easy way to get rich quick. These investors are hoping to reap great rewards with little to none research which has been leading new traders to follow the investments of popular users on reddit, YouTube and TikTok.

Throughout the surge of growth from GameStop (NYSE: GME) Reddit users have created a nemesis of a renowned activist short seller Andrew Left. This a modern day clash of David vs. Goliath surrounding the struggling retail chain GameStop. Andrew left has encouraged other investment firms to follow his own (Citron Research) into taking a short position on this stock. This has resulted in a loss battle for Citron as Andrew left announced that he has exited his position with a 100% loss and since then, GameStop’s stock price has seen unprecedented prices. Andrew Left noted “We move on. Nothing has changed with GameStop except the stock price.” His statement has not taken away any optimism from reddit users with many still setting their own price targets greater than $1000.

What’s Next?:

With the rapid surge of GameStop’s stock over the past week, it has come to the Biden administration’s attention and they are now monitoring the situation according to the white house. GameStop’s stock went up +134.84% today, reaching new all time highs in their stock price, but is trading down 9% after hours. This sort of trading activity is uncommon for this type of stock so it is unclear how the situation will be handled in the coming days and what this will mean for the stock price. With the rapid surge of the stock price over the last week it calls for all sorts of red flags and with GameStop’s stock continuing to be pumped up along with other stocks such as AMC Entertainment and Blackberry LTD, the future of these companies and what their stock price will look like in the coming weeks in unclear.

Upcoming Earning Reports:

Wednesday, January 27th, 2021:

  • AT&T Inc (NYSE: T)
  • The Boeing Company (NYSE: BA)
  • Nasdaq Inc. (NASDAQ: NDAQ)
  • Apple Inc. (NASDAQ: AAPL)
  • Tesla Inc. (NASDAQ: TSLA)
  • Facebook Inc. (NASDAQ: FB)
  • ServiceNow Inc. (NYSE: NOW)

Thursday, January 28th, 2021:

  • Mastercard Incorporated (NYSE: MA)
  • McDonald’s Corporation (NYSE: MCD)
  • American Airlines (NASDAQ: AAL)
  • Visa (NYSE: V)

Friday, January 29th, 2021:

  • Eli Lily and Company (NYSE: LLY)
  • Chevron Corporation (NYSE: CVX)
  • Caterpillar Inc. (NYSE: CAT)

Written by: Aneeshan Balakaran, Wil Peters, and Karthik Ganapathiraju

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