Everybody has been talking about GameStop (GME) in recent days...which makes total sense given that the stock had rallied over 3,000% from its August level...and it has done this even though its prospects are worse than anything Judge Smells would ever describe. (They sssssssssssuck!) This has led some people to say that the recent action in GME is another sign that the broad market has become a speculative bubble. They say that the willingness to buy this stock at these crazy levels is another sign of froth.
Well, the recent action in GME is certainly a reason for concern, but most of those people who are talking about GME are not discussing the REAL problem with its recent action. Most of people who are talking about this issue are not taking the next step...by going into the details of what has taken place in GME in the last week or so. In other words, even though most people realize that this situation with GME has little to do with traders “willingness” to buy the stock at these stratospheric levels...and much more to do with them getting squeezed (in the mother of all short squeezes)...they don’t discuss what it really means for the rest of the market. They don’t discuss how the term “short squeeze” is just another way of describing “forced buying”...and that it works in the opposite direction when “margin calls” create “forced selling”!!!
Therefore, the real issue surrounding the irrational rally in GME is that is shows what can happen when to many people get on one side of the boat...especially when they get to that one side of the boat with large levels of leverage. (Since short sellers are by definition leveraged...and the short interest on GME was very, very high...the situation became ...