GameStop’s stock price plummeted on Tuesday, dropping 60% to $ 90 each. The decline signaled that the popular stock market discussion forum WallStreetBets Reddit – a major force behind last week’s spectacular rebound in the shares of video game and other retailers – may be losing its magic to move the market.
GameStop’s downturn followed a sharp reduction in short interest on the shares, which measures how many shares of the company were loaned to sell. Many had pointed to the high interest previously uncovered and the fact that hedge funds and others that were betting against the video game retailer were squeezed as the reason for the GameStop stock skyrocketing.
“These things can last longer than people expect, but when they relax, they can relax very quickly,” said Ross Mayfield, investment strategist at Baird. “When the speculation and gambling craze is complete, someone will be holding the bag.”
The drop, which followed a sharp drop in GameStop’s shares on Monday, could also result in significant losses for some of the individual investors who had taken advantage of the positive stock market suggestions posted on the WallStreetBets. The forum soared in popularity last week, reaching 8 million members. GameStop shares reached a historic high of $ 483 on Thursday.
Since then, GameStop’s stock price has fallen by 81% in less than a week. This eliminated nearly $ 29 billion from the market value of the company’s shares, which at the peak last week had a market capitalization of $ 35 billion. On Tuesday, that market value dropped to $ 6.3 billion.
The stock prices of other companies that received stimulating mentions on WallStreetBets also fell sharply. Shares in the AMC Entertainment movie network also fell 40% on Tuesday, to just under $ 8 each. These shares reached $ 20 last week. BlackBerry shares, which had reached $ 28 last week, fell 21% on Tuesday, to $ 11.50, while Koss fell 43%.
Acting President of the United States Securities and Exchange Commission, Allison Herren Lee, told NPR on Monday that the stock market regulator is looking at different aspects of the sudden increase in GameStop shares, including whether brokers acted and if there was any manipulation of the market. She also warned against companies trying to raise money by selling shares at prices that appeared to be inflated by social media traders and were not sustainable.
CBS MoneyWatch reported on Monday that WallStreetBets discussion forum moderators recently detected a “large amount” of bot activity in the stock recommendation content being posted to their group.
Naked Brand Group, which sells underwear for men and women, announced on Monday that it sold more than 29 million shares in a subsequent offer of $ 1.70 each, raising $ 50 million for the company. The company, based in Auckland, New Zealand, is closing all of its stores in favor of online sales.
Naked Brand’s shares were trading at just 7 cents each until November. In its offering document, filed with the SEC, the company said its share price had experienced “extreme volatility” in recent weeks. The company said that price fluctuations appear to be driven by conversations on social media, as well as “short-term interest” in the company, in addition to other factors.
On Tuesday, Naked Brand shares fell to 91 cents each, a 45% drop from Monday’s offer price. A Naked Brand spokesman did not return a request from CBS MoneyWatch for comment.
—The Associated Press contributed to this report.