GameStop and other meme stocks rebound after sharp sell-off as Reddit traders 'hold the line'
- GameStop, AMC, and other retail-trader favorites rebounded as the Reddit-fueled rally regained steam.
- On Tuesday, a cohort of highly volatile stocks plummeted as investors secured profits and minimized losses.
- The day-trader crowd is at a crossroads: Repeat recent weeks' wild rallies, or cash out.
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GameStop, AMC Entertainment, and other Reddit darlings rebounded on Wednesday as retail investors banded together to "hold the line." The phrase has become a popular rallying cry on the Wall Street Bets subreddit among day traders hoping to preserve recent gains.
The group of highly shorted stocks plunged on Tuesday - including a 60% single-day drop for GameStop - as investors looked to secure gains or minimize losses.
The investors are at a crossroads: They can try again at bidding the names higher, or run for the exit.
Trading on Wednesday suggested that the coordination that powered last week's climb was wavering. GameStop rose as much as 26% in early trading, while AMC gained as much as 14%. BlackBerry climbed 4% at intraday highs, while Nokia and Bed Bath & Beyond posted similarly modest gains.
More-seasoned investors had repeatedly said that while some day traders could mint small fortunes through the Reddit-fueled surge, many who entered the trade late stood to lose big. The parabolic nature of the stocks' rally also lends itself to a similarly steep crash as profit-taking spurs others to sell out of concern that they'll be the last ones holding their shares.
It's possible the retail investors were encouraged by the easing of trading restrictions by Robinhood and other broker-dealers. Several trading platforms last week temporarily blocked investors from buying shares of GameStop, AMC, and other highly volatile stocks, saying they were trying to protect clients from unprecedented market risk.
Those policies have been somewhat reversed, allowing the army of day traders to continue buying at least some shares this week.
GameStop and most of the other so-called meme stocks still trade well above where they sat at the start of the year. Some companies have used the phenomenon to their advantage; AMC paid down debts and sold stock at extraordinary highs to extend its cash runway. Weeks after warning that it could go bankrupt, the company leveraged the retail-trader frenzy to stay afloat.
"The sun is shining on AMC," CEO Adam Aron said in a statement on January 25, adding that any talk of imminent bankruptcy was "completely off the table."
GameStop closed at $90 on Tuesday, up 367% year-to-date.
AMC closed at $7.82, up 262% year-to-date.