By Shashwat Chauhan, Medha Singh and Johann M Cherian
(Reuters) -Krispy Kreme and GoPro were among the companies riding the latest meme stock rally on Wednesday, as retail traders latched on to the highly shorted names a day after piling into the shares of department store company Kohl’s.
Individual investors are betting on riskier pockets of the market, including cryptocurrencies, as U.S. stocks soar to record highs on signs of a resilient economy and easing trade tensions.
Shares of doughnut chain Krispy Kreme, whose nearly 32% of free float have been shorted, jumped 18.5% to $4.88, adding to a nearly 27% surge on Tuesday. The stock was No. 3 trending ticker on Stocktwits, a retail investor-focused social media platform.
Action camera maker GoPro soared 54% to a three-month high of $1.44, while plant-based meat company Beyond Meat gained 8.3%.
“The common denominator seems to be stocks with high short interest again, sub-dollar stocks and they get moving somehow,” said Joe Saluzzi, partner and co-founder at Themis Trading.
The rally revived memories of the Reddit-driven meme stock frenzy of 2021 when amateur investors pushed up shares of video-game retailer GameStop and cinema chain AMC, burning hedge funds that were on the other side of the trade.
Opendoor Technologies, an e-commerce platform for residential real estate, has soared more than 400% this month and is among the first companies to draw retail interest this time.
Some market participants attributed the rally to bullish X.com posts from last week by EMJ Capital portfolio manager Eric Jackson, who said his hedge fund had taken a position in Opendoor, projecting the stock to hit $82 in the longer term.
Opendoor was last down 18.4% at $2.35. EMJ Capital did not immediately respond to a Reuters request for more details on their position in the company.
Jake Dollarhide, CEO of Longbow Asset Management, said just like Ryan Cohen got the meme stock trade started in 2020 with GameStop, the same scenario has played out with EMJ Capital and Opendoor.
REDDIT RALLY
Social media platform Reddit’s r/WallStreetBets, the 40th largest subreddit with 19 million members, was abuzz with screenshots of bullish bets on Opendoor and Kohl’s by amateur traders.
“Alright degenerates, we need to talk. OPEN ripped. KSS followed. But these cycles always come in threes, and we’re missing the final piece. I think it’s DNUT,” a Reddit user with the handle Enodios posted on the subreddit.
The growing interest in heavily shorted stocks comes after Kohl’s surged 37.6% on Tuesday, with the highest daily inflow from mom-and-pop traders in about three years, Vanda Research data showed. Its shares were down 12.9% on Wednesday.
Online gifts retailer 1-800-Flowers.Com, which has a short interest on 71.66% of free float, jumped 17%. Moves in Beyond Meat and 1-800-Flowers.Com were most susceptible to a short squeeze, Ortex said.
A short squeeze occurs when investors who had sold borrowed shares in the hopes of making money from a share price decline are forced to buy shares to close their losing positions.
“With both stocks moving higher in premarket, the probability of that dynamic kicking in is rising, especially for BYND, where borrow demand is already high,” Ortex’s Peter Hillerberg said.
About a quarter of total U.S. stock market orders are attributable to retail traders, J.P.Morgan data showed.
(Reporting by Shashwat Chauhan and Medha Singh in Bengaluru; Editing by Shinjini Ganguli and Arun Koyyur)