📑 Research Notes for 2021-02-01
This week, we look at the retail vs. hedge fund battle in GameStop and other heavily shorted stocks, as well as the new uptrend in jobless claims.
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The Frenzied Rise of GameStop.
(The Economist)
A week ago few people had probably heard of GameStop, the beleaguered brick-and-mortar purveyor of video games. Millennials might recall visiting a store in their youth; their parents, perhaps, taking them. None can claim ignorance now. The firm’s share price has spiked from a few dollars in 2020 to a peak of more than $350 on January 27th, transforming a firm that was valued at less than $200m in April 2020 into a $24bn middleweight.
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A Reddit Army Descends on Hedge Funds Chained by Risk Models.
(Bloomberg)
A hellish week for hedge funds will be remembered for how much damage Reddit traders caused by chasing a handful of the most-shorted names in the $43 trillion U.S. stock market. As a flood of retail money sent stocks like GameStop Corp. and AMC Entertainment Holdings Inc. surging, the trading signals that guide how the smart money invest flashed red.
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Goldman Warns If The Short Squeeze Continues, The Entire Market Could Crash.
(Zero Hedge)
According to Goldman Sachs Prime Services, this week "represented the largest active hedge fund de-grossing since February 2009. Funds in their coverage sold long positions and covered shorts in every sector" and yet "despite this active deleveraging, hedge fund net and gross exposures on a mark-to-market basis both remain close to the highest levels on record, indicating ongoing risk of positioning-driven sell-offs."
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Upward Trend Confirmed in New Jobless Claims.
(BondDad Blog)
On a unadjusted basis, new jobless claims declined by 101,498 to 873,966. Seasonally adjusted claims also declined by 67,000 to 847,000. The 4 week moving average, however, rose by 16,250 to 868,000. Since the 4 week average has risen above 850,000, and weekly claims were above 900,000 for several weeks in a row, jobless claims have finally met my criteria confirming a change to an upward trend.
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Curated by Joseph Lu, CFA®
Joseph has over a decade of experience as an investment professional, primarily in quantitative analysis and portfolio management roles. He is the founder and managing director of Conscious Capital Advisors and a CFA® Charterholder. The CFA charter is a globally respected, graduate-level investment credential by the CFA Institute, a global association of more than 90,000 investment professionals working in over 133 countries.
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