Squeeze

What began as scattered chatter on social forums quickly ignited into a full-blown trading frenzy. Last week, some very unlikely names topped the performance charts: Kohls ($KSS) ended 32% higher, GoPro ($GPRO) was up 66% and Krispy Kreme ($DNUT) surged 41%. Those rallies followed Opendoor’s ($OPEN) wild 42% ride last Monday - enough to trigger a trading halt.

So what’s going on? At the heart of this chaos is a familiar phenomenon: the short squeeze. It’s when a heavily shorted stock (meaning a large number of investors have bet it’ll fall) suddenly rises sharply in price. To close out their positions and limit losses, short sellers are forced to buy shares, which sends prices even higher. 

It’s a feedback loop of panic and euphoria, driving prices far beyond fundamentals. Often, it starts with retail investors rallying on forums like Reddit’s r/wallstreetbets, zeroing in on stocks with heavy short interest as prime targets for a squeeze. Kohl’s, for instance, has over 46% of its float shorted.

If this sounds familiar, we’ve seen it before with 2021’s GameStop ($GME) saga. Except for the average lifespan of a meme stock, of course – most of last week’s hot trades fizzled and some investors were left catching a falling knife.

Fortunately, the other side of Wall Street isn’t all hype and heartbreak. Earnings from tech giants Microsoft ($MSFT), Meta ($META), Apple ($AAPL) and Amazon ($AMZN) are on deck this week. These firms are some of the most longed stocks in history – and they’re names that move markets without message boards. 

Alphabet ($GOOGL) and Tesla ($TSLA) have already reported quarterly results. Alphabet beat  top and bottom line expectations, with a 14% YoY revenue jump and plans to ramp up capex spending. On the other hand, Tesla had its worst quarter in a decade – a 12% YoY decline in revenue sent shares 5% lower on earnings day.

Still, Tesla inched higher this week after the firm announced a US$16.5b chip contract with Samsung. The deal might also be more significant for Samsung, which will dedicate its new Texas hub to producing Tesla’s AI6 chip that powers humanoid robots, self-driving tech and other futuristic tech in Elon Musk’s promised pipeline. 

Meme stocks may be stealing the headlines, but it’s earnings, trade deals and the Fed’s rate decision that will chart the market’s next move. We’re midway through Wall Street’s busiest week. Buckle up.

This is not financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.