While traders were recently greeted with volatile moves in stocks such as GME and AMC, many don't understand the how and why... In theory, supply and demand determine which way a stock moves in the short term, whereas stock valuations generally dictate where a stock will be trading in the long term. Surprisingly (to me anyway), large groups of traders on various social platforms with huge cult followings were able to slay the Goliaths of the industry (Hedge funds who were shorting these stocks) by blindly buying GME and AMC to the point where they caused margin calls to the funds who were short and had to capitulate by covering their short positions, an industry term known as a short squeeze. Ultimately, valuation won out and that's why the stock is currently around the $50 level vs the $500 level less than 2 weeks ago. Whether the company is fairly valued at the current level remains to be seen, but buyer beware when you get caught up in these type of plays. In reality, GameStop has been called the Blockbuster of gaming, perhaps heading the way of the dodo. And while the hype of a failing company with skyrocketing shares may feel good, know that behind the memes and rocket emojis lie a dying business model. Come closing bell, valuation will always triumph supply & demand.
-Mordy If you're interested in the stock market check out our Stocks Page. Get 2 Free Stocks from Webull by Clicking Here. TRN may receive commission from links. We appreciate your support!
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