GameStop’s short sellers are on the run. Bulls may want it back.

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The short squeeze that helped to drive

GameStop

the parabolic stock race is losing momentum. Investors must be cautious.

GameStop

shares (ticker: GME) fell 42% to $ 129.98 on Tuesday morning. The shares fell to $ 74.22, but have recovered somewhat, as Robinhood has loosened the restrictions on buying shares a little. Meanwhile, data from the short sales analysis firm S3 Partners signals that short interest in the shares has returned to Earth.

Ihor Dusaniwsky, managing director of S3 Partners, said Barron’s on Tuesday, that only 26.09 million GameStop shares were recently shorted, or about 51% of the shares available for trading. This declined by more than 35 million shares in the past week alone, implying that last week’s increase was driven in part by large-scale short coverage.

If you take into account so-called synthetic longs, which are long positions that can be counted twice as a result of the short selling process, S3 estimates an adjusted short holding of only about 34% of the shares available for trading. When an entity lends its shares to a short seller, the seller then sells to a new owner. Technically, both the original holder and the new buyer are purchased, although no new shares have been created. Dusaniwsky says that adjusting this process offers a more logical and accurate view of overdrafts.

Although the interest rates sold were a feature of GameStop’s short-squeeze phenomenon, causing the video game network’s shares to rise as negative bets are closed, there is another side to this phenomenon. This can cause problems for bulls “if you eliminate the sold side of the market,” said Steve Sosnick, chief strategist at Interactive Brokers.

“One of the things that short positions do during the fall is that they provide a little bit of support because they tend to make a profit” when buying shares, said Sosnick Barron’s in an interview last week. “If you take off all the shorts and then something falls, there are fewer obstacles in the way.”

Unusually high short interest rates can be a sign of upward movement, as it has proved to be the case with GameStop, as short positions eventually need to cover, Sosnick said. On the other hand, very low short interest rates can be a downward sign.

“We were already having a very low interest in the market as a whole and that will really affect short sales,” added Sosnick, referring to last week’s high in highly sold stocks like GameStop,

AMC Entertainment,

and Bed Bath & Beyond. “So, you know, you really have to reduce the level of overdraft abroad. After covering, and not because they want to, but because they have to, who is left? Who is the marginal buyer at that point? “

At the WallStreetBets Reddit forum, the de facto center of the retail investor GameStop movement, users are asking each other to buy the dip and maintain existing long positions. But at least one notable investor did not take that advice.

Barstool Sports founder Dave Portnoy said on Tuesday that he had sold all of his “meme stocks” – those that went viral on social media, rising well beyond reasonable rating metrics. Portnoy’s post it has drawn the ire of people who say that these stocks may still rise, although he noted that he lost about $ 700,000 under those names.

Gary Black, who was a leading tobacco analyst at Bernstein in the 1990s and former CEO of Aegon Asset Management, said on Twitter he believes the tightening is “practically over, as the hedge funds that opened up short have offset their positions, and other hedge funds have bought the tightness in other operations.” Black is also active in

Twitter

talking about electric vehicles.

Dusaniwsky calculates that people who have already borrowed GameStop shares and shorted them are paying a 19% lending fee, but he notes that these fees are “decreasing significantly as the loan portfolio is being replenished as that shares borrowed from purchase hedges become available “He is seeing new shares loan rates in the range of 10% to 20%. The highest rates are among the motivators that drive short sellers to cover their positions.

Write to Connor Smith at [email protected] and Avi Salzman at [email protected]