Lessons from great rise and fall of GameStop shares

MARKETS continued their upward journey but did so with hiccups this time around. The benchmark indices slipped and lost ground on Tuesday and struggled on Wednesday closing almost flat. They still managed gains of 1,053.64 points or 2.05 per cent on BSE Sensex and 317.05 points or 2.10 per cent on NIFTY in the five days. While there are gains, the rate of change has slowed down and the optimism in the market seems to be losing ground.

Secondly all through the day today, markets kept on alternating between gains and losses, indicating uncertain times. FPI interest on the buying side too seems to be slowing down as well. All in all, this points to a situation which warrants extreme caution going forward.

Readers would be curious to know what Robinhood investors in the US are up to these days and a stock which comes to mind is GameStop Corporation. The company is an American video game, consumer electronics, and gaming merchandise retailer. This company has a 52-week high price of $483 and a 52-week low of $2.57. In recent times it has had its fair share of news as Robinhood investors bought the share and then bought it collectively to short squeeze large funds that had shorted shares of the company after borrowing stock. They then forced the short sellers to book losses and exit the stock and made huge money. The story doesn't end there as after rising to as high as $347 on January 27, the stock has been tumbling and closed at $50.31 on Tuesday 9th February. This fall has been happening because the exchange has imposed strict margins and the so-called Robinhood investors were forced to sell to pay the margins, causing huge fall in stock prices.

I believe a key lesson to learn from this is the fact that fundamental stocks alone should be invested in: anything else should be avoided. Just for the record, the movement in this stock on Tuesday was from $60 to $46.52 and finally closing at $50.31, a loss of $9.69 or 16.15 per cent.

Markets at this juncture are unsure of their trend or direction. While a correction is more than overdue, it seems to be delaying itself. This is making the undertone that much weaker and uncertain. While readers may think I am becoming a bit bearish, all indications are towards a sharp correction sooner than later.

Having achieved never before levels and seen a post Budget rally which has been the best in over 20 years, a weekly gain which has been best in over 10 years, one certainly gets the creepy feeling in the belly.

On the IPO front, all issues have come and listed on the bourses except the one from Brookfield Reit which would happen next week. The IPO from RailTel Corporation of India Limited would be offering 8.71 cr shares through an offer for sale next week. This is another issue from the ministry of railways.

For the period February 11 to February 16, even at the point of repetition the advice would be to continue to book profits and allow the market to find their own levels. A correction is overdue and would certainly help in making the markets healthier and more stable going forward. Trade cautiously.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)