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When the pitchforks come out

Hey Market Pilots,

How could I not write about the action that is going on with GME and all the other high short interest names? We have never seen a “coordinated” effort like this before where the little traders are taking on the big institutions and firms. I have “coordinated” in quotations because it’s all just a bunch of traders on social media coming up with an idea and they’re all actually doing it. 

Remember the flash mob craze a few decades ago? That sprung up because of people’s new ability to talk in a big group with online chat groups and coordinate a time and a place. We are seeing the same phenomenon, but now everyone is flash mobbing certain stocks while from the comfort of their own homes. Might as well, right, since we all have to be under lock and key.

Part of the angst I am seeing out there and why this is happening is that people are getting mad at the big players who say this is only for the pros and that you should pay them to get you your meager returns. And then when the market crashes, you have to ride it down, while they still get paid. So this seems to be people’s way of getting back at them with a taste of their own medicine. And their own toolbox while they are at it.

The tactic is that these big funds load up short on a particular stock ahead of time, then they hit the media rounds and bash the company, which drives investors out and helps to drop the price, which benefits the funds. This usually works, until it doesn’t. And when it stops working, it can be like a bomb going off in their accounts. The reason is that in order to exit a short, you have to buy back the stock. So not only is the stock going up due to natural buying pressure, the funds begin raising the price on themselves because they have to contribute to the buying in order to exit the short.

It’s a perfect storm scenario and it’s eating the funds alive. Now, we don’t know how this will end, as the funds are massive and could have a nearly unlimited supply of resources in the form of new capital from other funds. And we don’t know how big the Reddit, Robinhood, and single trader army is. But in the meantime, this is the most exciting thing I have ever experienced in the market.

Over and Out, 

Your Profit Pilot.

3 thoughts on “When the pitchforks come out”

  1. My goodness, your comments are the most cogent thing I’ve read in the past 24 hours!!! Thank you!!!
    Let’s just hope and pray that the “regulators” don’t jump in now, as they seem to be threatening to do, to “protect” us and throw more “regulations” on us “little guys”.

    Reply
  2. The other big point people are missing is that these funds are financed by the big banks, GS, Chase, BofA, etc. These guys are also on the hook when their hedge customer fails this big. You don’t think calls were made to figure out how to bail them and themselves out without doing it overtly?

    Reply

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