- Most shorted stocks which were boosted by Reddit-based retail traders this week lost a bit of their steam on Thursday.
- Some media reports analyzed that the slack could have been caused by moderators of Reddit’s WallStreetBets temporarily turning its settings to invitation-only
- Another factor that could have caused Reddit-boosted stocks to deflate was brokerages such as Robinhood and Interactive Brokers restricting their trading on Thursday.
Heavily shorted stocks such as BlackBerry (TSX:BB), GameStop (NYSE:GME, GME:US), AMC Entertainment (NYSE: AMC, AMC:US), etc. soared over the past week under the influence of Reddit-based day traders rooting for them. But on Thursday, January 28, most of these shorted stocks lost a bit of their steam.
The decline in their share value was triggered by a couple of reasons. Let’s delve in to find out what they were.
Why Reddit-Fueled Stocks Retreated?
Stock exchange enthusiasts witnessed a rendition of the ‘David vs Goliath’ tale this week as an army of retail investors communing on Reddit-boosted stocks, which short-sellers and major Wall Street analysts had projected as declining. A Reddit forum named WallStreetBets was largely attributed for triggering GameStop’s insane rally earlier this week. Soon after, other shorted stocks that were mentioned on this group rapidly gained momentum, leaving many investors and market experts to scratch their heads.
But the rally of these shorted stocks hit a bump late on Wednesday and Thursday. Some media reports analyzed that the slack could have been caused by moderators of WallStreetBets temporarily turning the forum’s settings to invitation-only, hence turning away discussions by non-members.
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The move came after many slammed the forum moderators for allowing hate speech and threats in the chatroom. Messaging platform Discord even took down WallStreetBets for violating its guidelines.
Another factor that could have caused Reddit-boosted stocks to deflate was brokerages such as Robinhood and Interactive Brokers restricting their trading on Thursday.
Many slammed these brokerages for the ban, accusing them of favoring Wall Street’s interests at the expense of small-time traders.
Later in the day, Robinhood changed gears and announced that it would allow limited trading in the Reddit-boosted stocks on Friday.
WallStreetBets moderators too reversed their settings later on Thursday, opening the forum back up to all.
Following the news, shorted stocks of GameStop, etc. picked up pace again by the end of the day, but their decline was noticeable.
GameStop Corporation stocks slid by over 44 per cent on Thursday, while BlackBerry was down 40 per cent. Shares of AMC Entertainment and Koss Corporation dwindled by about 57 per cent and 28 per cent, respectively, at the end of the day.