GameStop slides, silver spree stalls as retail traders run out of road

The videogame chain's shares have see-sawed in a dramatic week that has seen billions of dollars gained and lost by financial firms

GameStop shares sank on Tuesday and a silver buying spree led by small investors subsided as a Reddit-driven trading frenzy that has shocked global financial markets over the past week started to show signs of fizzling out.

The videogame chain's shares, which have see-sawed in a dramatic week that has seen billions of dollars gained and lost by financial firms, were down 42 per cent at $130 in pre-market trading after scaling a high of $483 last week.

Spot silver prices, an alternative focus in the battle between a pack of small traders and Wall Street hedge funds since late last week, fell more than 5 per cent after hitting an eight-year high a day earlier.

Analysts said the silver pullback may show the limits of small investors' impact in a large market, while posts on the popular Reddit forum, WallStreetBets, ranged from those giving up on the silver trade to calls to stick with the GameStop stock.

Explainer | How a GameStop share pullback could hurt some investors

"The stocks side of things has faded because they all had a look at silver yesterday, but my feeling is they'll be back, depending on whether retail trading platforms will allow you to buy more than one share," said Keith Temperton, an equity sales trader at Forte Securities.

Another Reddit favorite, movie theater operator AMC, slumped 33 per cent although it remains 500 per cent higher than the start of the year, before the organized band of small buyers piled in and forced a "squeeze" that required big funds to close short positions by buying shares at very high prices.

Online broker Robinhood, on whose platform much of the buying and selling has taken place, confirmed on Monday it had raised another $2.4 billion from shareholders following a $1 billion boost last week as it strives to meet demands for additional collateral to cover trades.

The broker has also held talks with banks about raising another $1 billion in debt, people familiar with the matter told Reuters.

Analysts at financial institutions continued to predict the action was likely to fade, it was just a question of how soon.

"The hope factor of this stock is very big," said Chris Bailey, strategist at Raymond James.

"So over this year, does the share price continue to go down? The answer is yes. We've seen it with internet shares in 2000 and so I think it will happen again."

Showdown

The surge in day-trading mania has boosted the price of assets ranging from cryptocurrencies to new stock market listings, sparking billions in losses for hedge funds that bet prices of those assets would fall and drawing the attention of financial regulators.

Online trading platforms, which have also received a warning from the US Securities and Exchange Commission for imposing trading limitations on some of the hot stocks, continued to roll back trading curbs on Monday, with Robinhood easing trading limits on GameStop to 20 shares from four.

In London, a sign of still-strong demand came from online greeting-card retailer Moonpig, which leapt 25 per cent in its debut on Tuesday, while Tellimer Research pointed to Ping An Insurance and Tencent as being ripe for a short squeeze in Asia.

Read | Five things to watch in Reddit stocks trading mania

Meanwhile, broader markets appeared to be moving on from jitters the frenzied buying had triggered and S&P 500 futures rose 0.8 per cent on stimulus hopes.

"There certainly exists a frothiness to this market that we are concerned about ... (but) we do think that this year has the potential to be a solid one for equities," said Joseph Amato, chief investment officer of equities at Neuberger Berman.

"Unlike these option-fueled stocks, valuations in general are underpinned by improving fundamentals."

The number of shorted GameStop shares has fallen by more than half in a week, analytics firm S3 Partners said on Monday, although the videogame retailer remained the sixth-biggest short by value.

Quicksilver

One big drag on prices was an overnight margin hike on silver by the Chicago Mercantile Exchange, which makes speculative trade using derivatives more expensive.

The US iShares Silver Trust ETF, the largest silver-backed ETF, fell 5 per cent before the trading bell a day after posting its biggest one-day gain in more than five months.

The ETF added about 20 million ounces of silver to its holdings on Monday following a record inflow of about 34 million ounces on Friday, taking its total to about 621 million ounces.

US-listed mining stocks including First Majestic Silver and Pan American Silver also lost between 4 per cent and 17 per cent.

"It is slowing down a bit," said Gregor Gregersen, founder of Silver Bullion, a dealer in Singapore, after a wild 24 hours where he said sales exceeded average monthly levels from 2018 and orders above S$35,000 ($26,300) arrived every three minutes.

Hedge funds raised their bets against Canadian silver-mining stocks, January short-selling data from a market regulator showed.

Reddit moderators had on Tuesday removed one of the most popular posts suggesting buying silver and many WallStreetBets posts focused on riding out the volatility.

"WHO IS HOLDING GME WITH ME?" read one top post. "I'M HOLDING EVEN IF MY PORTFOLIO GOES DOWN TO ZERO," read another.