Remember at the start of 2018.. the markets were calmly grinding to new all time record highs, the VIX was at 10... and the talk was of excessive complacency?
Remember what happened next? The market went into a free fall and the VIX rocketed higher blowing up VIX products in the process.
This GME, AMC., and short squeeze theme has a similar feel, except with upside action causing the blow up.
The result will be some over exuberant shorts getting blown up.
Listen... I loved GME for many years. Had calls in recent years and thought the console refresh was going to launch the company back on the right path. I did not expect the stock to rally as it has. Historic. This will not be forgotten.
GME has been heavily shorted for years. It was 40% of the float, then 60%... and recently over 140% of the float was short.
And this was in the face of some positive boar d member changes and the console refresh.
140% short interest means shorts were borrowing shares that had already been borrowed to short the stock. That is assuming all the float was avaible to be shorted. If not... shorts may have borrowed and sold the same shares over and over and over.
It's mind boggling. And yet they held.... even with the stock making a move back into double digits. Even with investors taking stakes in the company.
in 2021... it seems upside will cause the blow up. Funds that were short GME, AMC, GSX and the likely selling their long positions to cover their short blowups.
How ironic is it in 2021 that upside is what is causing some downside. Futures are lower this morning.
The FED talks later. The risk is Powell talks of excess, or bubbles in the stock market. Last month he said all was well. That the current low interest rate environment matches what is going on in the stock market.
Any change this month could put a damper on things short term. However with more stimulus and COVID relief on the way, and an ever expanding money supply... I don't think the stock market is going to pull back in a meaningful way just yet.