GameStop’s rally came to a sharp halt as the shares had their biggest one-day loss on record, erasing more than $27 billion in market value from their high.
The stock, which has been the poster child for Redditers looking to squeeze short sellers, fell 60 per cent Tuesday, and closed below $100 for the first time in a week.
Several other Reddit favorites – including cinema chain AMC Entertainment Holdings and clothing retailer Express – also tumbled.
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-favour stocks that also included American Airlines and BlackBerry.
"With GameStop, if you trade now you are presumably betting on what happens tomorrow or next week," said Craig Birk, chief investment officer at Personal Capital. "There are online pleas to buy and hold, but this does not feel like a buy and hold situation."
GameStop has now given up more than 80 per cent of the sharp gains that were fueled by last month’s attack on short sellers. Even with the latest pullback, however, the computer console and games retailer is still up 377 per cent year-to-date.
AMC trimmed losses to 41 per cent and at $7.84 is more than 50 per cent lower than last week’s intraday high. Express declined 32 per cent and has lost more than three-quarters of its value since peaking on Wednesday.
"Once you get through some of this initial speculation, the question becomes what are the fundamentals of the company," said Chad Oviatt, director of investment management at Huntington Private Bank. "And when you get back to it, the fundamentals will eventually drive stock prices and that's where you'll see a lot of these names pull back to more reasonable price levels."
Billionaire entrepreneur Mark Cuban told Reddit investors on Tuesday morning to hold on to their GameStop stocks if they could afford it.
“If you can afford to hold the stock, you hold. I don’t own it, but that’s what I would do,” the 62-year-old wrote on Reddit during a “Ask Me Anything Session” to discuss investment strategies. – Bloomberg