Retail fatigue snaps GameStop's rally

GameStop Corp.'s recent surge showed signs of fatigue Thursday as retail investors battled to keep shares near a six-week high.

The video-game seller dipped 1.9 per cent to snap a six-day winning streak, its longest since September, whiplashing investors after a volatile morning. Despite Thursday's stumble, the stock remains up 156 per cent this month compared to a 3.4 per cent rise for the S&P 500.

The "rapid rise up in shares is unwarranted, less about future prospects, and more of a statement about social & economic inequality," wrote CFRA Research analyst Camilla Yanushevsky, who reiterated her sell rating.

"In our view, we're witnessing a 'Reoccupy GME' movement, following Feb.'s splintering off into silver, dogecoin and other financial instruments" by retail investors, she added.

GameStop's rally took another breather Thursday amid wild swings

Trading volume saw its slowest day in a week. Just 27.6 million shares exchanged hands, less than half the activity seen in the past two weeks.

GameStop had been on a tear for the prior six days as Chewy Inc. founder and activist investor Ryan Cohen continued to shake up operations at the video-game retailer. The Grapevine, Texas-based company said Monday Cohen would lead a new board committee focused on its digital transformation.

Thursday's hiccups for GameStop came as the tech-heavy Nasdaq 100 continued to rebound after an 11 per cent rout from its mid-February record through Monday's close. The stock's recent surge came in the face of a risk-off trade where investors pulled out of high-flying companies like Apple Inc. and Tesla Inc.

The stock's steady position alongside AMC Entertainment Holdings Inc. as the two most mentioned names on StockTwits and continuous posts on platforms like Reddit show how dedicated retail investors have been. However, the number of skeptics voicing concern for the disconnect between the company's prospects and share price are growing.

One thing Wall Street is keenly focused on is the prospect of amateur traders funneling their $1,400 stimulus checks into the stock market and retail-favorites like GameStop and AMC.

Almost half of individual investors between 25 and 34 years old plan to put 50 per cent of their stimulus checks into the stock market, according to a survey by Deutsche Bank. That means there could be as much as $150 billion going into US stocks, the bank said.

Thursday's breather served as a reminder to investors of Wall Street's warnings about GameStop's outlook. The stock has no buy recommendations among analysts tracked by Bloomberg.

Bearish bets have remained near the lowest level in at least a year with 21 per cent of available GameStop shares currently sold short, according to data compiled by S3 Partners. (Bloomberg)