Financial data firm S3 Partners published a note on Monday analyzing the recent surge in meme stocks, stating: “Meme trading is back.”
Meme stocks like GameStop (NYSE and AMC Entertainment (NYSE ) saw significant price gains on Monday. GME was up early, up 74%. AMC jumped 78%. S3 also notes that Trump Media & technology Group ( DJT) rose in early trading on Monday, before closing up more than 1%.
The S3 Partners note delves into the impact on short sellers. GME short interest stands at $1.13 Billion, with 64.49 Million shares shorted. This year, there has been a slight increase in GME short selling. However, despite the initial profitability, short sellers face losses.
According to S3 Partners, GME short sellers increased during the first four months of 2024, but Monday's price movement resulted in an estimated $838 million loss in market value. In May alone GME short sellers have lost $1.24 billion so far this year.
S3 Partners identifies GME as the prime candidate for a short squeeze. The note also notes that today's losses will likely pressure some short sellers to exit, which could lead to more buying and higher prices. However, S3 Partners also expects new short sellers to enter the market.
A similar situation is developing for AMC and DJT. S3 Partners expects pullbacks in both stocks, followed by an influx of new short sellers.
“DJT's losses at market value, coupled with its high equity debt ratios of 250-300%, make it a very squeezeable stock,” the company states. “DJT short sellers have been suffering the combined blows of sky-high financing costs along with large market value losses and we have seen over a million covered buy shares over the last week. There will be more DJT short selling “It will be shut out of its operations if its share price continues to rise.”
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“Meme trading is back, and short sellers of stocks like GME, AMC, and DJT will teeter on the precipice of short squeeze as their stock prices rise,” the company adds. “Crowded stocks with market value losses are short squeeze targets and these three stocks fit the bill.”
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