A critical driver of GameStop’s parabolic gains in 2021 and 2024 no longer exists

GameStop recently booked its highest closing price since June 6, supported by overwhelmingly bullish action in the options market. It’s little surprise, then, that social-media buzz around the potential for another frenzy in the shares of the embattled brick-and-mortar retailer intensified in concert with the rally.

There’s one problem. Well, there’s probably multiple problems, but just to highlight one…

(And no, I’m not talking about the company’s operational performance. That hasn’t been a foundational component behind any of the stock’s major up-moves since 2020.)

The issue is that part of the bull case involves chatter like this…

...and this...

…but this time, there is no Melvin Capital or secret, powerful cabal of mustache-twirling Wall Street villains putting major downward pressure on GameStop by shorting the stock. Exchange data show that while around 25% of the float was sold short as the Q2 boom in the stock was taking shape, that share was down to just 8% by the end of November.

S3 Partners, which tracks higher frequency data, noted that as of Wednesday, shorts had also been covering more of these bearish bets month to date.

That means there’s much less potential pent-up forced buying pressure (a so-called “short squeeze”) that could accentuate gains in the event of another round of unbridled investor enthusiasm for the name.

“The short-interest situation now is night and day in GME compared to the meme frenzy,” said Matthew Unterman, managing director at S3 Partners. “Shorts were squeezed out Q2.”

In other words, to book the kind of advances seen in the second quarter of this year or in the first half of 2021, bulls need even more people to join the chorus of those saying, “I like the stock.” Because, likely due to prudent risk-management practices — with zillions of companies out there, surely shorts can find another company with a similar operational profile that doesn’t have such a passionate following — there aren’t a lot of investors out there putting their money where their mouth is to say, “I don’t like the stock.”