GameStop (GME) plunges 40%, short squeeze effect fades

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GameStop Store U.S.
GameStop Store U.S.

Since the start of 2021, GameStop (NASDAQ: GME) soared 1,500%. The surge was driven by a Reddit message board called WallStreetBets. GameStop stock reached a record-breaking $483. However, the rally was disrupted first by a 31% in Monday’s trading session and followed a 40% plunge on Tuesday.

The disruption was due to the short-squeeze effect fading. GME fell 40% the second decrease in a one week period. The stock price lost 31% on Monday and GME lost a total of 73% as of this writing. Furthermore, several stocks that were gaining momentum in January plunged. AMC — the movie-theater chain fell 31% while BlackBerry and Bed Bath and Beyond shed 42% and 36%, respectively.

Several financial firms wanted to profit from short-selling GME but were surprised by the Redditers counter-attack. Consequently, due to the battle between bulls and short-sellers, GME was paving its way to an all-time high price. GameStop rally resulted in heavy losses to hedge funds and Wall Street traders. Melvin Capital, one of the company’s that made a bet against GameStop was down 53% in January. The firm hit with a $4.5 billion fall in assets.