Tag Archives: dip

Business

The GameStop stock roller coaster has come to the dip

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It hasn’t been a good day for WallStreetBets, as GameStop’s stock has plummeted today. AMC, the community’s other bet, dropped as well. But unlike previous dips, the stocks don’t appear to be rallying. Prices stayed low for the entire trading day, something that hasn’t happened since WallStreetBets became a household name one week ago.

When the market closed today, the price of GameStop was $90 even, an 81 percent drop from GameStop’s peak at $483, and a 58 percent drop from its price of $218 on Friday evening. AMC is down too, closing today at $7.82, which is a 61 percent drop from its peak at $19.88.

It’s hard to believe that in August of last year, GameStop was trading at $4.50. Between then and last week, some investors bet that the stock was undervalued, driving it up to around $30 a share. Then, the WallStreetBets subreddit decided it would take the stock to the moon, punishing those betting against it and attempting to make money in the process. The idea of buying at $4 a share and selling for $400 obviously captured the public’s imagination, and millions rushed to give trading a try as the GameStop meme went mainstream — taking AMC and others along for the ride as investors realized they could pump those stocks too.

GameStop’s stock over the past week, with a big ‘ol dip today. If this was a roller coaster track, it’d be a lot of fun.
Chart: Apple Stocks

No, it’s not the same picture, just the same shape.
Chart: Apple Stocks

As to whether this is the end of GameStop’s wild ride, it’s almost impossible to tell. The past week’s peaks, dips, and drops have been detached from the underlying businesses.

Part of that is the culture of WallStreetBets itself. Praising people for not selling their stocks, and ridiculing those that do is a recipe for a community that’s going to be stubborn. And now it’s started telling itself that the drop is due to hedge fund market manipulation.

If this news has made you feel like reading about other stock market shenanigans, CNBC has an article that compares what’s happening now to the 2008 Volkswagen short squeeze, and Vox’s Recode has an interview with Henry Blodget, who was involved with the Dotcom bubble.

As for the people who have deep losses from today’s dive? They’re hoping for a rally, so they can at least sell for what they bought in for. Some, like Dutch student Evan Oosterink, are counting on it — he bet about $10,000, which represented “years of savings from his parents and some government college loans,” The Washington Post reported. He lost about $9,000 today, but is still holding the stock in the hope that he can recoup his loss. “Being a part of WallStreetBets, it’s like a religion you’re devoted to,” he said to The Washington Post.



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Business

Buy the Tesla Dip? This 5-Star Investing Guru Just Did

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Shares of Tesla (NASDAQ:TSLA) climbed more than 700% in 2020. However, that has some people wondering whether the stock isn’t due for a downturn. Indeed, those concerns took shape last week, as Tesla’s stock fell steadily to drop below the $800 per share level by Friday.

For many who have a big profit on a stock position, a decline might prompt some modest profit-taking or even a full-scale liquidation of their holdings. But for ace investor Cathie Wood at ARK Invest, the dip in Tesla was an opportunity to buy — and buy she did, without hesitation.

Image source: Tesla.

Sell high, buy low

Wood has been a big fan of Tesla for a long time. Several of her active exchange-traded funds  have substantial holdings in the stock. Specifically, the ARK Innovation ETF (NYSEMKT:ARKK) and the ARK Next Generation Internet (NYSEMKT:ARKW) both have almost 10% of their assets invested in the electric automaker.

Last week, the two ARK ETFs trimmed their positions in Tesla. Some might have concluded from just watching that single week of activity that Wood might be losing her confidence in the stock.

But Wood reversed course on Jan. 29, taking advantage of the share price decline to buy back some of the shares she had sold the previous week. ARK Innovation bought more than 85,500 shares of Tesla on Friday, representing about 0.3% of the fund’s total assets. ARK Next Generation Internet made a similarly sized buy in proportion to the smaller size of the fund, picking up almost 23,500 shares.

How much money did ARK Invest make?

With active ETFs, we don’t get real-time information about the purchases and sales that fund managers make. However, the funds are required to give their positions each day, and ARK Invest reveals the exact number of shares involved in each purchase or sale.

However, you can estimate the amount of the benefit to the fund that Wood’s transactions produced. Tesla traded at $845 on Jan. 19 and $850 on Jan. 20, the days on which the ETFs sold Tesla shares. With Tesla closing Jan. 29 at $794, the fund could have saved $51 per share on the 85,500 shares ARK Innovation bought. ARK Next Generation Internet sold only 10,500 shares last week, but it could’ve saved $56 per share on the rebuy. Do the math and that adds up to $4.36 million for ARK Innovation and $588,000 for ARK Next Generation Internet.

The benefits of rebalancing

Interestingly, what Wood did is very similar to what most financial advisors recommend that people do with their overall investing portfolios. Essentially, Wood did a short-term rebalance. She sold Tesla shares when the percentage of the ETF portfolio got higher than she wanted. But when that percentage subsequently got too low, the funds bought shares to get back into balance.

You can see the same kinds of gains with broader rebalancing of your stock, bond, and cash positions. In years when stocks rise, selling a small portion at high prices to shift into lower-price assets reduces your risk level and cashes in on some profits. If the stock market goes down in a subsequent year, then rebalancing has you buy shares on the cheap.

What’s next for Tesla?

Tesla inspires a lot of controversy, and there’s no end in sight for that. Some still argue that Tesla’s profits are artificially inflated by regulatory credits, masking the inherent weakness in its business. Others point to the immense optionality in Tesla’s business, as well as the strong demand for its vehicles.

As for Wood, her prowess is in large part due to her investments in Tesla, but the automaker isn’t the only stock that’s performed well for her. Both ARK Innovator and ARK Next Generation Internet have earned five-star ratings from Morningstar, and the list of other holdings looks like a who’s-who among rising giants of their respective fields.

Tesla shares have risen so much that shareholders need to expect pullbacks, and they could be much larger than what we saw last week. Yet for long-term investors who see value in the vision of CEO Elon Musk and the technology that Tesla has produced, those short-term fluctuations are primarily an opportunity to pick up shares slightly more cheaply.



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Business

Amid the GameStop-led frenzy, Jefferies says ‘plenty of air’ to come out of riskier assets. Another strategist says wait to buy the dip

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Markets are buckled into the fighting chair as another day of the retail-led feeding frenzy on shorted stocks is about to come online.

In case you thought the trading mania was a limited battle between internet day traders and Wall Street hedge funds: videogame retailer GameStop was one of the most traded stocks by value in the U.S. on Wednesday. 

Amateur investors, many based on the Reddit group WallStreetBets, are jumping into heavily-shorted stocks, driving prices to astronomical levels and forcing hedge funds to sell bigger, safer bets to cover losses.

Selloff is creeping to other investments and spooking sentiment. Major indexes took a 2% to 3% ride down on Wednesday and are set to continue surfing.

A must-read: Tendies? Diamond hands? Your guide to the lingo on WallStreetBets, the Reddit forum fueling Gamestop’s wild rise

Our call of the day comes from the U.S. equity researchers at Jefferies, led by global equity strategist Sean Darby, with a bonus call from Sébastien Galy, a strategist at Nordea Asset Management.

The team at Jefferies is clear that the correction in share prices has little to do with fundamentals. Rather, what’s happening is a reflection of a “sentiment shift within some of the more overbought and speculative parts of the market.”

The group’s retail speculative index, measuring the deviation from trend of assets where value is hard to determine, is high at 4 standard deviations. “Hence, there is plenty of air to come out of the riskier financial assets,” the team said.

Darby’s team noted that the short-term worry is whether the “popping” of riskier parts of the market will create a domino effect, as mainstream equities are liquidated to stem losses.

Galy, of the Nordic asset manager Nordea, echoes Jefferies’ caution about a wider selloff. He also says it’s too early to buy the dip, because there’s more to come.

The big moves to cover shorts at a time of high leverage typically forces more deleveraging, Galy said. This is because the constraint on capital from the risk of losses on investments is ratcheting up.

“As a consequence, the cost of hedging downside risk has sharply increased,” Galy said. “This risk reduction could last a few days followed by a sharp liquidity driven rebound in U.S. and to a lesser extent European stocks.”

Galy said that even a dovish Federal Reserve meeting on Wednesday couldn’t turn around this market, which is another signal that it may last.

The buzz

Shares in GameStop
GME,
+134.84%
touched the $500 level in the premarket before pulling back. The stock was just $19 heading into 2021. Fashion brand Nakd
NAKD,
+252.31%
is another stock making a big leap in the premarket, up 130%.

In a Securities and Exchange Commission filing this morning, cinema-theater chain AMC
AMC,
+301.21%
revealed that holders of the company’s convertible bonds have chosen to convert the notes into stock, as shares in the company have rallied around 330% since Tuesday. 

Apple
AAPL,
-0.77%,
Facebook
FB,
-3.51%,
and Tesla
TSLA,
-2.14%
posted earnings after the close yesterday. Technology giant Apple topped $100 billion in quarterly revenue for the first time, crushing expectations, as social-media company Facebook also beat estimates, with sales soaring 156% from “other revenue” — like virtual-reality headsets and video-chat devices. Electric-car maker Tesla reported its sixth straight quarter of profit, but it was a miss on expectations.

But if you can peel your eyes away from the stock market, it is a big day on the economic front. Initial and continuing jobless claims are due at 8:30 a.m. EST, with around 875,000 people expected to have filed for unemployment last week. Gross domestic product figures for the fourth quarter of 2020 will come at the same time, before new home-sales figures for December are reported at 10 a.m.

After the Federal Open Market Committee decided to hold monetary policy steady yesterday, Fed Chair Jerome Powell gave dovish signals that the central bank wasn’t done restoring the COVID-19 pandemic-ravaged economy to health. “We have not won this yet,” he said.

The markets

It looks like another wild day on Wall Street. Yesterday’s tumult saw the Dow Jones Industrial Average
DJIA,
-2.05%
tumble more than 630 points, and stock market futures
YM00,
-0.07%

ES00,
-0.31%

NQ00,
-0.90%
are pointing down, set to continue the selloff. Asian markets
NIK,
-1.53%

HSI,
-2.55%

HSI,
-2.55%
fell across the board and European indexes
SXXP,
-0.76%

UKX,
-1.13%

DAX,
-0.86%

PX1,
-0.17%
are firmly in the red.

The chart

Our chart of the day, from Marshall Gittler at BDSwiss, shows how the S&P 500
SPX,
-2.57%
dropped by the most since October 2020, and the VIX index of expected volatility saw its biggest one-day rise since the COVID-19 pandemic hit in March 2020. 

The tweet

When the sharks root for the fish. Billionaire entrepreneur and investor Mark Cuban — of “Shark Tank” fame — is rooting for Reddit’s WallStreetBets traders.

Random reads

An Oklahoma lawmaker has proposed a ‘Bigfoot’ hunting season with a new bill.

Key West wants to ban people from feeding fat, feral, free-roaming chickens.

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Business

Stock futures dip after a steep sell-off on Wall Street, Apple and Tesla fall after earnings

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Stock futures tied to major U.S. equity indices were flat in overnight trading on Wednesday as the market is poised to extend a sharp sell-off amid concerns about heightened speculative trading.

Futures on the Dow Jones Industrial Average traded just 10 points lower. S&P 500 futures were little changed and Nasdaq 100 futures dipped 0.4%.

Apple turned in its largest revenue on record at $111.4 billion in its fiscal first-quarter earnings report for fiscal 2021. Sales for every product category rose by double-digit percentage points. Shares of the tech giant dipped 3%, however.

Tesla dropped more than 3% in extended trading after the electric car maker posted worse-than-expected earnings for the latest quarter. The company also said it expects annual average delivery growth of 50% going forward.

Wall Street suffered steep losses on Wednesday, with the S&P 500 and the Dow posting their worst day since October, as the speculative buying frenzy in heavily shorted stocks kept investors on edge. Some fear that hedge funds being squeezed could be forced to reduce their equity holdings to raise cash.

“Short squeezes causing implosions in some hedge funds are joining SPACs, IPOs, and bitcoin as data points supporting a market bubble thesis,” Scott Knapp, chief market strategist at CUNA Mutual Group, said in a email. “This is a time for caution for investors.”

Trading volume exploded in the previous session with 23.7 billion shares changing hands, marking the heaviest trading day since at least 2007.

Brick-and-mortar video game retailer GameStop, a target on the “wallstreetbets” Reddit chat room, soared another 134% Wednesday, pushing its January gains to a whopping 1,744%. AMC Entertainment surged over 300% Wednesday alone, experiencing its highest volume ever.

GameStop fell 23% in extended trading, while AMC Entertainment dropped 38%. Other highly shorted names that had rallied this week, including Bed Bath & Beyond and National Beverage, also fell after hours.

Facebook stock remained relatively flat in after-hours trading after the company warned that a reversal in pandemic trends could hurt its advertising business. The social media company beat on top and bottom line for the fourth quarter.

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