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Retail Investors Take On Wall Street
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Retail Investors Take On Wall Street

In a truly David versus Goliath fashion, the emergence of the retail trader came to the fore last week as “average joe” investors took on some of Wall Street’s heavyweights.

The global onset of the coronavirus pandemic in 2020 accelerated the growth of interest in online trading as COVID-induced unemployment, government-issued stimulus checks, boredom and opportunity jump-started a renewed rise of the retail investor.

Stock markets got pummelled between Feb. 9 to Mar. 15 of 2020 as investors dumped billions of dollars’ worth of stock in a tsunami of panic selling. The S&P 500 dropped around 35% over the course of a month and unemployment rates skyrocketed.

But as most industries ground to a halt, retail investing saw a spike in interest and demand. Share prices were trading at levels not seen for many years, and individual investors, armed with only their laptops, saw an opportunity to “Buy Low and Sell High.”

As interest grew, so too did the popularity of social news and discussion website Reddit. Sub-Reddit group, WallStreetBets, dominated the news last week as it was revealed that members of the platform had devised and executed a cunning plan to collectively buy stocks with massive short interest, and drive up the price to induce large hedge funds to liquidate their short positions.

Goldman Sachs called it the biggest short squeeze in the last 25 years and warned that this trend could continue as record numbers of traders are entering the market.

While GameStop (GME) and AMC Entertainment (AMC) were the most publicized beneficiaries of the short squeeze strategy, rising 1,625% and 525%, respectively, last month alone, TipRanks decided to investigate how some of the other heavily shorted stocks on Wall Street have performed.

Currently with 62% short interest, Ligand Pharmaceuticals (LGND) rose 19% last week to end January up 86%. Despite the recent rally in price, the average analyst price target of $212 implies that the stock still has around 14% upside potential over the next 12 months.

Shares of Bed Bath and Beyond (BBBY) gained 15% last week, almost doubling in price for the month of January. 57% of BBBY shares are still held short. Bank of America analyst Curtis Nagle downgraded the stock last week to a Hold from a Buy, telling investors that the recent run-up in price can only be described as a short squeeze and that the fundamentals of the company have not changed. Nagle remains optimistic about the company’s turnaround and his Street-high price target of $55 suggests upside potential of around 56%.

iRobot Corp. (IRBT) closed out the month with 38% short interest and a share price gain of 50% for the month. Northland analyst Michael Latimore downgraded the stock last week to a Hold but raised his price target to $120 from $100. He believes that iRobot’s Q4 earnings results will be strong but warns that the recent price action could be short lived.

Other notable targets mentioned by followers of WallStreetBets include Macerich (MAC), which despite falling 17% on Friday, is up 47% year-to-date, and Blackberry (BB), whose share price has more than doubled since the start of the year.

Early signs on Monday are pointing to a continuation of last week’s volatility. However, it has now emerged that the WallStreetBets followers have not limited their attack to U.S. stocks alone. Other asset classes including commodities and cryptocurrencies are also being targeted.

Messages on the Reddit platform have been circulating since last week that silver is another asset that has peaked traders’ interests, with one post on the platform reading, “SILVER BIGGEST SHORT SQUEEZE IN THE WORLD $SLV 25$ to 1000$.”

The price of silver has climbed 18% since Thursday last week. It appears the WallStreetBets group is targeting multinational hedge fund Citadel, on suspicion that it has a large short position in the commodity, but Reddit followers are not united on this idea, with some traders begging their counterparts to avoid the trade.

Cryptocurrencies are also on the WallStreetBets radar. Dogecoin (DOGE) has rallied 750% so far this year, and 375% last week alone. One post on Reddit stated, “I missed the waves on GME and won’t make the AMC train, but I’ve got a few thousand DOGE that I want to ride to the moon!”

Ripple (XRP) is another crypto that seems to have benefitted from all of the hype and has risen 160% in a week. Even Kiss frontman Gene Simmons confirmed on Monday that he too has bought Dogecoin, XRP and others.

As the investing community prepares for another week of expected volatility, it is evident that the “man-on-the-street” investor has become far more knowledgeable than previously thought and that the retail trader has become influential enough to challenge some of Wall Street’s most powerful institutions.

Contributing editor to The Financial Times, Bloomberg columnist and ex-chair of President Obama’s Global Development Council, Mohamed El-Erian, described what is happening as small investors, driven by market curiosity, taking on Wall Street using platforms previously dismissed by traditional market powers.

“Potentially in play is the democratization of finance, tech-led disruptions to market hierarchy, the overall valuation of markets, regulatory and political responses, and the market structure itself,” El-Erian said.

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