The Shares of GameStop started falling even before the opening bell on Tuesday, with the share price dropping more than 40% in pre-market session.
The stock tumbled to $104 at 9:44 a.m. in New York, after triggering its first volatility pause of the day. The video-game retailer’s market value has dwindled by $26 billion to $7.4 billion from a Thursday intraday peak, though the stock is still up almost 500% year-to-date.
The Shares of GameStop sank further, trading below $80 per share at the time of this report, having lost more than 64% of its opening value.
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The tumble follows a more than 30% drop during the regular market session Monday. The stock has now slid more than 70% since Friday’s close.
GameStop’s retreat has coincided with a sharp reduction in short interest after bearish investors appeared to cover their positions. That has loosened a squeeze on the stock caused by day traders who used Reddit forums to tout and bid up out-of-favor stocks that also included movie-theater chain AMC Entertainment Holdings Inc. and American Airlines Group Inc.
“It looks like the unwind of the short squeeze, where prices will start to reflect economic reality again,” said Maarten Geerdink, head of European equities at NN Investment Partners.
Other stocks recently favored by the Reddit community are also rapidly losing steam: AMC tumbled 42% and at $8 is more than 50% below last week’s intraday high. Express Inc. declined 29% and has lost about 70% of its value since peaking on Wednesday.
The declines come as short sellers reduce their interest, having sustained multi-billion dollar losses. The short interest in GameStop shares has tumbled to 36% of its freefloat, according to data from IHS Markit.
Tuesday’s drop came despite a loosening of restrictions on the amount of shares investors can buy using Robinhood Markets Inc. On Monday afternoon, the popular trading app started allowing users to purchase up to 20 shares of GameStop, up from a cap of one before the market opened.
The lower number of shares sold short could also deal a blow to day traders’ thesis that a higher stock price would only result in more gains as hedge funds who bet against the Grapevine, Texas-based company would need to cover their shorts.
One popular Reddit user, DeepF******Value, is apparently still holding onto his GameStop shares, incurring a loss of about $5 million following Monday’s drop, according to a screenshot showing the user’s portfolio.
The retail investor army had taken on the big houses on Wall Street, and is usually the norm the house has fought back.
The restrictions on trading of GameStop shares on platforms like Robinhood and others popular with retail investors had dampened the GameStop momentum.
As many business tycoons and billionaires like Donald Trump used to say, “Never lose your momentum,” for if you do, it is extremely difficult to get back to it.
With little fundamentals backing GameStop, the chicken might have come home to roost.
Nnamdi Maduakor is a Writer, Investor and Entrepreneur