An alternative outlook Gamestop (NYSE: GME)

The below article is a guest post on NYSE: GME submitted by SwaggyStocks. My Blog usually focuses more on Dividend Growth Investing so it is nice to have a different outlook on a company that I would not usually write about.

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Introduction

This week, NYSE: GME had a face-ripping rally as margin calls went amok and shorts were forced to cover their positions. It is no secret that many institutions and funds were shorting Gamestop into the ground as the business was teetering on the brink of bankruptcy and negative growth.

Ryan Cohen, former Chewy (CHWY) CEO and co-founder, has made his presence on the Gamestop board and is known for his pro-activeness in trying to turn the Gamestop story, similar to Chewy, into that of an e-commerce giant.

Forecasting a Squeeze

Did anyone see the coming of this recent squeeze? A group of Reddit traders, known as WallStreetBets, have been forecasting this for many months while the big boys and funds were out shorting this stock. SwaggyStocks, one of the internet’s best Reddit stock trading sentiment aggregators, may have anticipated this change in the stock of GME.

Let’s take a look at the page on SwaggyStocks – WallStreetBets Tickers that displays the subreddit’s distribution of tickers. During the volatile market action for NYSE: GME shares last week (up 50-90 percent on certain days), comment volume crossed over 40 percent of all subreddit ticker references. For the ticker, the comment amount alone hit 7,500 on one of those days in particular. That is pretty amazing.

We may take a look at the sentiment over time chart that SwaggyStocks provides us. If we focus down on the NYSE: GME ticker. We see a relatively mild increase in chatter around NYSE: GME in late December (around the 22nd), where the number of comments reached 20 percent of total comment volume. What was happening that day?

Increased stake in NYSE: GME

Ryan Cohen revealed that he had raised his stake in Gamestop from about 9% to about 13%, a 4% rise. The stock price shot up from $15 to about $19 that day, and so did the stock-related speculation. What’s surprising to see is that the GME share price had almost no change for the following 3 weeks, remaining in a reasonably calm daily range of just about 3-4 percent. The stock started dying off during this era of lower volatility chatter as the comment share fell from 20 percent to its low of 4 percent just before this major squeeze.

Is sentiment having an effect on the price of the stock? Will the stock price follow a stock’s sentiment and “hype” or is the opposite happening? It’s hard to say, but looking at most sentiment charts on SwaggyStocks, we can see that the best entry points are actually after speculation dies off after a stock has initially taken off to meme status, and nobody is talking about them.

Similar to charting and technical analysis, sentiment can be seen differently in each eye of the beholder doing the analysis. Does strong momentum and bullish sentiment predict a reversal in the stock, similarly to an RSI? Or does it suggest momentum will continue and to ride it until it’s no longer there?

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