Crazy GameStop Trading Action Continues: What Traders Need To Know

Volatility associated with a likely major short squeeze in GameStop Corp. GME continued on Tuesday as the stock’s crazy run continued.

The trading action in the video game retailer began last Wednesday when the stock surged 56.1% without reporting any major news. On Thursday, GameStop shares gained another 26% before giving up 12.2% on Friday.

The GameStop rally resumed on Tuesday with another 16.5% gain, again on no major news from the company.

Related Link: Massive Short Squeeze Sends GameStop Soaring 80%

What’s Behind The Rally? GameStop investors are cheering strong holiday sales numbers out last week and the addition of three new board members from activist investor RC Ventures. However, it’s difficult to see how that news alone would drive a more than 70% gain in less than four days.

It’s much more likely GameStop is experiencing a technical market event known as a short squeeze.

GameStop has one of the largest short positions in the market relative to its free-trading share count, making it particularly susceptible to short-term price spikes driven by large-scale short covering.

Short squeezes tend to be extremely volatile, but they don’t tend to last for very long. On Tuesday, Citron Research’s Andrew Left tweeted that GameStop buyers are “suckers at this poker game,” calling for the stock to be back at $20 relatively soon.

Benzinga’s Take: Traders should be extremely careful trying to time the squeeze and any potential pullback. Short squeezes are notoriously volatile and unpredictable, even to some of the most experienced stock traders.

GameStop traded around $40.45 per share at publication time.