GameStop short squeeze is 'scary': Douglas C. Lane's Sarat Sethi

Описание: GameStop shares were up another 70% in the premarket Wednesday but off their highs of the day after CNBC learned Melvin Capital, the hedge fund targeted by the retail investing crowd on Reddit had sold out of its short position. Sarat Sethi, managing partner at Douglas C. Lane, joined "Squawk Box" on Wednesday to discuss. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi

Wall Street has been watching GameStop in awe as a band of Reddit-obsessed retail investors managed to push the stock up 1,500% in two weeks, squeezing out short-selling hedge funds.

A wave of at-home traders found each other on the red-hot “wallstreetbets” Reddit chat room, whose members have ballooned to over three million. By motivating each other to keep piling into shares and call options, they coordinated a monstrous short squeeze in the brick-and-mortar video game retailer.

“Retail investors with the help of technology acting as a union in attacking is a new phenomenon,” said Jim Paulsen, chief investment strategist at the Leuthold Group.

“You combine the power of technology, which allows you through Reddit postings to magnify your individual impact, with some use of leverage and very targeted bets, they can have a significant influence, particularly on areas of vulnerability because of the short positions,” Paulsen said.

Many enthusiastic Reddit users have been posting screenshots of their brokerage accounts, some of which touting astronomical returns north of 1,000% in a handful of days. These passionate investors often call out short sellers in the chat room in colorful language and unpleasant internet memes.

“This is gaining cult-like status,” said Quincy Krosby, chief investment strategist at Prudential Financial. “It is a pack of traders and the pack is gaining momentum. The retail crowd is not just taking over the shorts and it’s taking over the headlines.”

The intense speculative behavior among retail investors is unnerving many on Wall Street as mounting losses by hedge funds could spill over to other areas of the market. Some also believe this buying frenzy could be an ominous sign for a market at record highs.

“It could potentially destabilize the overall market and the confidence in the market. Those who have not joined will be compelled to join,” Krosby added.

These amateur investors have started targeting other heavily shorted names including AMC Entertainment and Bed Bath & Beyond, leaving Wall Street analysts’ targets in the dust.

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