GameStop stock and AMC Entertainment were up Wednesday after plunging earlier this week as the Reddit-fueled stock craze showed signs of cooling off.
XDespite plunging stock prices and investigations, some market watchers say the so-called Reddit rebellion is far from over.
More GameStop-Type Short Squeezes Ahead?
Entrepreneur Mark Cuban, who made his fortune during the dot-com craze, told CNBC on Tuesday: "I think now that they've recognized their power and now that they've learned some lessons, we're going to get more of it, not less of it."
He added: "It's not going to be a set of circumstances where all these people lost money, they're going to go home with their tail between their legs and they're never going to do this again."
GameStop (GME) closed up 2.7% at 92.41 on the stock market today after diving 60% Tuesday and 31% Monday. GameStop stock is still down 71% for the week. AMC Entertainment (AMC) rose 14.7% Wednesday, regaining some of yesterday's 41% loss. Koss (KOSS) jumped 28% after diving 43% and 45% earlier this week. Express (EXPR) bounced back 5.3%.
But Inovio Pharmaceuticals (INO) dropped 3.5%, following a 33% surge on Monday to a five-month high of 16.96 on a Reddit call to action. The stock was also buoyed Monday on news that investment firm BlackRock increased its stake in the biotech company. Meanwhile, even spot silver prices, which had been a target of retail investors on Monday, have settled at around $26 an ounce after reaching an eight-year high of around $30.
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SEC Investigating
Amateur investors are behind the short-squeeze that propelled these laggard stocks into the stratosphere last week. They targeted short sellers, namely hedge funds, that bet on a stock's price to go down to make a hefty profit. But if the price goes up, these short sellers can lose huge amounts of money buying the stock to close out their contracts.
WallStreetBets Reddit group has pumped up the price of GameStop stock and AMC by encouraging massive numbers of retail investors to buy the stocks. The result is a short squeeze, because it pressures short sellers to close out their positions at a great loss.
The frenzy last week led trading app Robinhood to halt trading on many stocks. On Monday, Robinhood eased those restrictions. But the Securities and Exchange Commission says it's investigating last week's events. In an interview with NPR on Monday, acting chair Allison Herren Lee said the agency is looking at the conduct of broker-dealers and financial intermediaries that retail investors use to access the markets.
"We need to make sure that the decisions that they make when they look to restrict or limit trading are compliant with regulations, that they're transparent to their customers and that they're consistently and fairly applied," she said. Herren Lee said the SEC is also looking at potential manipulation of the market.
Please follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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