It's been nothing short of a wild ride, but like every meme stock rally, this one too appears to be coming to an end.
The meltdown of stocks like BBBY (down another 40% after hours on news confirming Cohen sold his 5,000,000 share stake), KIRK, GME, AMC, BGFV, and PRTY seems to be accelerating. It started yesterday as we saw a violent reversal in FUBO, and then toward the end of the day BBBY started to tumble. AMC and GME also did not fare well.
The third largest short covering move in the last two and a half years happened recently, driving a significant amount of this price action. Though it wasn't short covering alone that catalyzed the extreme upward violence we witnessed in meme stocks and unprofitable growth.
We also witnessed near a euphoric CBOE equity put/call ratio, with a large amount of delta squeezes in unprofitable tech and growth as well as meme stocks, to many of the same falling deeply out of favor. Seen above this was the largest amount of call buying since April of 2022.
When short squeezes unwind often is the case that there's significant downside, especially when we witness parabolic moves. The combination of speculators exiting their shares and options with shorts potentially reentering at more favorable prices can create situations where the downside moves are rapid and painful for anyone positioned long. Sometimes the entire move is retraced or even more downside emerges.
That's why any sort of short squeeze-driven trade thesis should consider careful risk management both in terms of price and time. In any of these events time is often not our ally, especially as we see less and less retail-driven options activity, and shorter and shorter duration squeeze events.