Hey Traders,
While the WallStreetBets community absolutely kneecapped a couple of hedge funds, those holding the stock now that the “squeeze has ended” (or are buying more) need to go back and read about how short squeezes expire.
They are not a new phenomenon; they happen all the time.
And the result is almost always the same …
Uncle Mark’s Story Time
Let me tell you a story about a short squeeze …
There once was a stock called Tilray (Ticker: TLRY) …
It was a cannabis company and lots of retail traders loved it.
It went up and up and up …
Hedge funds hated Tilray because it didn’t make any money. Managers thought the company might never turn a profit and believed it to be a fad.
But the stock kept going up …
And volume exploded.
Until one day …
The stock blew off its top, moving from 155 to 300!
Funds that were short the stock were forced to cover. And they were very sad.
The next day, once the shorts were out, the stock began to drop …
And drop …
And drop …
Over a three-day period, poor Tilray fell 200 bucks off of its high …
And volume decline.
This was news and flow algorithms getting out of the stock.
But the retail traders held on!
And the stock rallied!!
ALL the way back to $164!!!
Retail traders thought this was their chance to get in, and the news monitoring algorithms bought with them!
All was happy in the land once more.
Then this happened over the next month …
Volume fell and fell and fell ..
And so did the stock, down to 70 dollars.
But it didn’t stop there.
A year to the day from when the short squeeze volume spike began, the stock was $22.
The hedge funds were out, most retail traders were out and only the few insistent bag holders remained …
The Moral
Gamestop is going to probably fall another day or two. Then there will probably be a pop (although there isn’t always).
But this time it might not get back to 125.
Then the stock is going to drop … and keep dropping.
When this is all over, GME will be back where it started — or worse.
Do you remember where it was when the squeeze started?
The answer is 3.63.
Where are we in this pattern?
Learn from history — don’t be a bag holder.
The End.
Your Only Option,
Mark Sebastian