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Markets are strapped to the fighting chair as another day of retail feeding frenzy over short stocks is about to come in line.
In case you thought the trading mania was a limited battle between internet day traders and Wall Street hedge funds: video game retailer GameStop was one of the most valuable stocks in the United States on Wednesday .
Amateur investors, many of whom are based on the Reddit WallStreetBets group, are branching out into heavily sold stocks, pushing prices to astronomical levels and forcing hedge funds to sell bigger, safer bets to cover losses.
The sale crawls to other investments and scares the sentiment. The main indices fell 2% to 3% on Wednesday and should continue to surf.
Must read: Tendies? Diamond hands? Your guide to lingo on WallStreetBets, the Reddit forum fueling the rise of Gamestop
Our call of the day comes from American equity researchers at Jefferies, led by global equity strategist Sean Darby, with a bonus call by Sébastien Galy, strategist at Nordea Asset Management.
The Jefferies team is convinced that the correction in stock prices has little to do with fundamentals. Rather, what is happening is a reflection of a “change of sentiment within some of the more overbought and speculative parts of the market.”
The group’s speculative retail index, measuring the deviation from the trend of assets whose value is difficult to determine, is high at 4 standard deviations. “Therefore, there’s a lot of air coming out of riskier financial assets,” the team said.
Darby’s team noted that the near-term concern is whether the “burst” of riskier parts of the market will create a domino effect, as common stocks are liquidated to stem losses.
Galy, of Nordic asset manager Nordea, echoed Jefferies’ caution about a wider sell-off. He also says it’s too early to buy the dip, as there is more to come.
Big moves to hedge shorts at a time of high leverage usually force more deleveraging, Galy said. Indeed, the constraint on the capital of the risk of losses on the investments increases.
“As a result, the cost of hedging downside risk has risen sharply,” Galy said. “This risk reduction could last a few days, followed by a marked rebound by liquidity in the United States and to a lesser extent in Europe.”
Galy said even an accommodating Federal Reserve meeting on Wednesday could not reverse this market, which is another signal that it may last.
The buzz
Actions in GameStop GME,
hit the $ 500 level in pre-marketing before pulling out. The share was only $ 19 heading into 2021. Fashion label Nakd NAKD,
is another title that is making a big leap forward in the market, up 130%.
In a Securities and Exchange Commission filing this morning, the AMC AMC movie theater chain,
revealed that holders of the company’s convertible bonds have chosen to convert the notes into shares, with the company’s shares rising about 330% since Tuesday.
Apple AAPL,
Facebook FB,
and Tesla TSLA,
posted earnings after yesterday’s close. Tech giant Apple topped $ 100 billion in quarterly revenue for the first time, shattering expectations, as social media company Facebook also topped estimates, with sales up 156% on ‘other income – like virtual reality headsets and video chat devices. Electric car maker Tesla reported its sixth straight quarter of profit, but expectations were missed.
But if you can take your eyes off the stock market, it’s a big day on the economic front. Initial and continuing jobless claims are due at 8:30 am EST, with around 875,000 people expected to have filed for unemployment last week. Gross domestic product figures for the fourth quarter of 2020 will come at the same time, before new home sales figures for December are released at 10 a.m.
After the Federal Open Market Committee decided to keep monetary policy stable yesterday, Fed Chairman Jerome Powell gave dovish signals that the central bank had not finished restoring the economy ravaged by the COVID pandemic -19. “We haven’t won yet,” he said.
The steps
It feels like another crazy day on Wall Street. Yesterday’s uproar saw the Dow Jones Industrial Average DJIA,
plummet more than 630 points, and YM00 stock futures,
ES00,
NQ00,
point down, ready to continue selling. Asian markets NIK,
HSI,
HSI,
fell across all areas and European SXXP indices,
UKX,
DAX,
PX1,
are firmly in the red.
Table
Our chart of the day, from Marshall Gittler at BDSwiss, shows how the S&P 500 SPX,
has fallen the most since October 2020, and the VIX Index of Expected Volatility has seen its biggest rise in one day since the outbreak of the COVID-19 pandemic in March 2020.
The tweet
When sharks take root for the fish. Billionaire entrepreneur and investor Mark Cuban – of “Shark Tank” fame – encourages WallStreetBets traders on Reddit.
Random readings
An Oklahoma lawmaker proposed a “Bigfoot” hunting season with a new bill.
Key West wants to ban people from feeding fatty, wild, free-range chickens.
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