The Revenge of the Little Guy(s)

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Summary:

  • Market volatility has risen sharply, partly due to the Gamestop saga
  • January’s top-performing sectors and themes include Biotech, Clean Energy and Tin
  • US Q4 2020 earnings results have so far been very positive, and should lead to earnings upgrades for 2021

Suddenly everyone has heard of Gamestop and Gamma Squeezes!

After the week that was, even my 16-year old son W has heard about the Gamestop story, and is asking me to explain what it is all about.

I will not bore you all with yet another explanation of what Gamestop does (a US store chain selling video games), why hedge funds were so keen to short it or what a “gamma squeeze” is. But here is the result on the Gamestop share price (thus far)...

Gamestop has gained > 1800% in January 2021!

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Source: tradingview.com

For those of you seeking a detailed explanation of the Gamestop saga thus far, read this article.

This new retail investor-based phenomenon (using online trading platforms like RobinHood) has not just been confined to GME Gamestop. Indeed, if we look at a basket of the most heavily-shorted stocks in the US, we can see that they have performed incredibly well as a group over the last few months, far better than the overall S&P 500 index. For an explanation of short selling, short interest, and short squeezes, read this Investopedia article.

Most heavily-shorted US stocks have done very well recently

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Source: Bloomberg

This has definitely caused a lot of pain to hedge funds who sell shares short (aiming to profit from a fall in prices), with many of these popular short positions losing a lot of money for them. For a list of the US companies currently shorted the most (led by Gamestop), have a look at this list.

This retail investor phenomenon has certainly caused some volatility in stock markets, with the US VIX volatility index (often called the ‘Fear Index’) jumping up to an elevated level of over 30 this last week, while still below the peak levels seen in March, June or October of last year..

Stock market volatility has spiked higher

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Source: tradingview.com

Correction concerns...

Well it…

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