The GameStop saga continued...

It has been about six months since the GameStop & Reddit traders furore was last in major headlines, and though it was treated by the mainstream media as a pump & dump flash in the pan, the story is certainly far from over. So grab a drink or a three course meal, and let's delve down the rabbit hole with the GameStop & stock market update that you never asked for.?

Firstly, a disclaimer:?

1) None of this is financial advise?

2) This is my own opinion based on six months of research

So, as a brief recap, the bricks and mortar video game retail store GameStop hit the headlines in January for being subject to a phenomenon known as a 'short squeeze', after retail investors found out that large hedge funds were shorting the stock to profit from the company's demise.

During the squeeze, the stock hit a high of $483 and then settled back down to around $40 after a large volume of investors cashed in their gains. GameStop, cinema chain AMC, and other companies being shorted were subsequently labelled 'meme stocks' by the media due to the nature of the Reddit banter and camaraderie surrounding these stocks on R/Wallstreetbets and other subreddits. Ultimately, a global community of traders came together, to begin exposing just how corrupt and irrevocably broken the American stock market is, while tipping the scales of fortune in their favour, much to the chagrin of many big market players.?

Let's start off with discussing the market psychology of Fear & FOMO. The pattern of retail trader behavior historically is geared around the fact that in the event of a stock price plummeting sharply, that the traders (labelled as dumb money by Wall Street) will panic sell their positions. Oppositely, a steep raise in price will cause a swathe of buying from amateur traders which in the event of a 'pump & dump', will leave many holding the bag of unrealized losses at the top of the spike once it plummets again. Market makers and hedge funds who basically own and control a number of major and stock market media outlets, push their agenda using Fear & FOMO to sway retail traders behavior, to effectively scoop up 90% profit every year.??

When the GameStop (GME) event occurred, this appeared to be a pump and dump, spurned on by a rebellion of retail traders to incur the losses of many hedge funds, which it did. Hedge funds such as Melvin Capital suffered losses of 49% ($6.5 billion) in the first quarter, and other hedge funds such as White Square Capital closed permanently. Many expected this story to fade away, as GameStop was still just a flailing bricks & mortar company bound for the scrap heap, right? Well, no.?

GameStop has a (not so) secret weapon, named Ryan Cohen, who previously took his e-commerce pet company Chewy founded in 2011 and sold it for $3.35 billion in 2018. Cohen was voted in as the Chairman of GameStop in April as part of a planned company wide transformation. With him, he took multiple Chewy executives and has also since been hiring a slew of multi-talented Amazon executives to take GameStop forward. News reports since have included the purchase of at least seven large procurement centers around the U.S. On top of that, they now have $2 billion cash in the bank and zero debt. And, on top of that, GME was just added to the S&P 400 mid-cap index. (A majorly prospective market upgrade for a previously failing company.)?

So basically what GameStop has now that it had far less of in January is major fundamentals, though Cohen has not really unveiled his master plans, and left many guessing which direction GameStop will go in. There has however been much chatter about NFTs (Non-Fungible Tokens) crypto dividends, and Ethereum playing a part of the stocks future. Whatever the next major announcement, it could prove to be a significant catalyst for the stock.?

The global community of traders of GME in the meanwhile, uncovered one major find after the short squeeze, which was that the real short squeeze has yet to happen. Why? The short sellers apparently did not close their positions. Even when the stock sank to $40 again, the hedge funds expected the price to keep falling to increase their gains. But it did not, because the one collective strategy that the 'Apes' (GME retail traders) implemented was to 'Buy and Hold.'

It is unlikely that in the history of the stock market have so many traders independently adopted this strategy simultaneously, of purchasing and not selling on one stock for such an extended period. The GME price subsequently had bullish runs up to $265 in March, and then $300 again in June. The Hedge funds and shorts will effectively be bleeding money every day suppressing the stock price below it's actual value, while it costs nothing to traders simply to hold, regardless of how manipulative the price representation becomes. You only lose if you sell at a loss after all, and the apes have little to lose compared to the big players.

So as far as market manipulation goes, this is where things get interesting. Since the 1980's there has been an alternative trading system in place called 'Dark Pool trading', which may as well be called the black stock market for how shady it has become in terms of stock price manipulation. Historically, dark pools have been used for large orders where there is a lack of liquidity, or for institutions to make trades without publicly announcing their intention until the trade has been executed.?

What has become blatantly apparent, is that major players and hedge funds are using dark pools to suppress the price of GME and probably many other stocks, effectively hiding their true price and also using high speed algorithm trading to drive the price down by 'synthetically borrowing' shares. (That and, a lot of other manipulative practices involving selling and buying put and call options simultaneously at large volumes.)

One trading platform that was actually complicit in the price suppression of GME stock was RobinHood, founded in the U.S by Vladimir Tenev and Bhaiju Bhatt. During the January squeeze, RobinHood turned off the 'buy' option on GME stock, directly blocking it's traders from opening more positions, leaving them only with a 'Sell' option, which assisted the shorts to quickly suppress the price again.?

Tenev gave a testimony directly to the House Committee on Financial Services during the Gamestop Hearing, apologizing to the traders that use Robinhood for halting trading on GME. It's probably worth mentioning that Robinhood provide PFOF (Payment for Order Flow) to one of the major short sellers of GME, which is Citadel. PFOF supplies 3rd party buyers with traders order information, in order to anticipate stock movements to trade ahead within nanoseconds using algorithmic trading. Many challenge the controversial practice of PFOF, which gives the hedge funds and other big players a dramatic and ultimately unfair advantage over retail traders.??

Cue the SEC (Securities and Exchange Commission) who are effectively (supposed to be) the stock market police, and investigating all of this shady and illicit behavior to create a fair and free market. Their new chairman Gary Gensler, appears to be siding with the retail investors sentiment of the concept of free market trading and fair price representation, trying to make sure everything is routed through lit exchanges such as the NYSE. He was recently censored by CNBC for voicing his opinions on the matter, so posted the redacted clip on his own Twitter page in retaliation. Gensler has since been accused by finance journalists such as Andrew Ross Sorkin of being a conspiracist. It's also worth mentioning that Ken Griffin, the CEO of Citadel, was a listed as a likely source for Sorkin when writing his book; 'Too Big to Fail.'

So, what does this all add up to? Well, the story is going to end one way, in one of several ways. GME stock is most likely going to go up either because of bullish news yet to be unveiled by Ryan Cohen and GameStop, or there will be another short squeeze created by a myriad of rolling catalysts, which has many retail traders believing it could lead to the largest squeeze in the history of the stock market, that would make Bitcoin surges look about the size of a rubbish bin next to the Burj Khalifa tower.

The hedge funds and shorts will continue to manipulate the price of course as well as dissuading traders from buying and holding, but at this stage the sentiment is that the apes are not selling, treating GME stock almost as a collectors item. The shorts have been kicking the can down the road trying to delay the GME price increase, but it is unlikely to last forever, as it costs them heavily to do so every day.

The level of blatant manipulation by hedge funds and institutions who have access to dark pool trading, PFOF and high speed algorithm trading, is inevitably going on with other stocks so it's affecting the whole stock market, not just Gamestop, AMC and other heavily shorted stocks. Anyone investing at any scale, or who works for or holds shares in a publicly traded company, will be effected at the end of the trading day too. The underlying fundamentals of companies that prop up the U.S stock market will be truly meaningless if these illicit practices are not exposed and eradicated.

One thing is certainly guaranteed, the 'apes' will continue to buy and hold GME stock to watch their favorite video game retailer prosper with Ryan Cohen at the helm, and with a level of balance, fairness and order has implemented into the 'free market' led by the SEC.?There will certainly be another day of reckoning with GameStop in the near future, and the apes won't forget who turned off the buy button or hid the real price from them. The internet always wins, after all. ???

Overall, GME is up 799.01% for the year and the current price $155.08 at this time of writing.

Reference links:?

Ryan Cohen - https://www.wsj.com/articles/gamestop-ryan-cohen-chewy-meme-stock-11628776861?

GameStop news - https://news.gamestop.com/news-releases-0?

Gensler & Dark Pools - https://www.forbes.com/sites/jonathanponciano/2021/08/04/sec-looking-closely-at-dark-pools-heres-what-they-are-and-why-reddit-traders-are-rallying/?sh=59cb6f572e42?

Citadel & Dark Pools - https://wallstreetonparade.com/2021/08/allegation-that-ken-griffin-is-running-citadel-connect-as-a-dark-pool-is-posted-on-sec-chair-genslers-twitter-page/?

Vlad Tenev testimony - https://www.youtube.com/watch?v=F4KGFLDmddY?

Dark pool definition - https://www.investopedia.com/terms/d/dark-pool.asp?

Andrew Sorkin, 'Too Big to Fail' - https://nymag.com/news/media/61870/