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📑 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.
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.
A Reddit Army Descends on Hedge Funds Chained by Risk Models.
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.
Goldman Warns If The Short Squeeze Continues, The Entire Market Could Crash.
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."
Upward Trend Confirmed in New Jobless Claims.
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.
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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