GameStop short interest is going down, Shorts are starting to cover


GameStop’s astronomical 1,625% rally this month to $325 a share has inflicted nearly $20 billion in losses for short sellers, according to data from financial analytics firm S3 Partners. However bears appear to have started covering their GameStop Corp. positions in earnest as the stock plunges.

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Short interest in the video-game retailer plummeted to 39% of free-floating shares, from 114% in mid-January, according to IHS Markit Ltd. data. Data from S3 Partners, another market intelligence firm, showed a similar pattern, with GameStop’s short sales having fallen to about 50% of its total stock available to trade, down from a high of roughly 140% reached earlier this year.

GameStop's short interest plunges as a percent of shares available for trading

GameStop sank 29% as of 10:54 a.m.m in New York, after rallying 1,600% in January. Hordes of day traders piled into the shares after noticing the elevated short interest in hopes that buying would force shorts to cover, driving the price ever higher. Now the trend is reversing.

While itself volatile, the short data is potentially an early sign that the short squeeze that propelled GameStop over 1,600% higher in January has progressed. Reddit day traders’ success igniting its shares evolved into a strategy of targeting the market’s most-hated companies, sending the likes of Koss Corp. and AMC Entertainment Holdings Inc. soaring as well.

“Short squeezes can only last as long as there is a large short position in a stock. Once that dissipates, the situation changes completely,” said Matt Maley, chief market strategist at Miller Tabak & Co.

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Still, at 50% of shares outstanding, GameStop’s short rate remains elevated compared to most of the rest of the market and may have to fall further before the squeeze is over.

“It signals that a short squeeze has begun in earnest and most probably will continue if GameStop’s stock price stays at these levels or rises more,” Ihor Dusaniwsky, managing director of predictive analysis at S3 Partners, said by email. “The short squeeze is over when the shorts that are left are comfortable with their positions and price expectations for GameStop.”

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