Right now, all everyone is talking about is GameStop (NYSE: GME) and wallstreetbets. Everyone is focused on how much money folks have made or lost. However, what no one is talking about is what if you missed the move in GameStop. No one is talking about how to find the next GameStop. In this article, I want to show you how to find the next GameStop.
First, it’s important to understand what happened with GameStop. GameStop is a brick-and-mortar video game retailer. As of February 1, 2020, the company operated 5,509 stores across 14 countries. As you can see from the chart below, GameStop is up 1700% so far in 2021 and up over 13,000% off the 52-week low of $2.57 a share.
I first came across GameStop as an investment in 2019 when Dr. Michael Burry from The Big Short disclosed a position and I posted the idea on Trading View, which you can read here. GameStop was trading at just $3.54 at the time.
Burry had 1,703,400 shares of the stock at the end of the third quarter, according to a securities filing. That is down from the more than 2.7 million he had at the end of the second quarter, but it was still his largest common stock position.
Hedge funds are required to disclose their holdings to the SEC at the end of each quarter. This allows investors to see not only what stocks a hedge fund owns, but also which stocks they are betting against. In the case of GameStop, there was no shortage of hedge funds betting against GameStop.
The Rise Of The Retail Investor
The COVID-19 pandemic has created a new breed of investor. With folks stuck at home and sitting on cash, many have opened free accounts at Robinhood and Webull which both offer free stocks to those who join. With Webull, you must deposit $100 to get 4 free stocks, which you can do so here.
This new breed of investors is focused on the social aspects of investing. Investors are posting their thoughts and positions on Reddit, Stocktwits, Twitter, and in many Discord chat rooms. This has contributed to the herd mentality and the ability to push stock prices in either direction. Reddit’s wallstreetbets now has 4 million followers. If each follower bought $100 of GameStop, that’s $400 million in dollar volume. Make it $1000 and that’s $4 billion.
This is the wisdom of crowds and why it doesn’t pay to bet against these folks. This is why Melvin Capital needed a $2.75 billion cash injection after getting squeezed on its GameStop short position. Finally, the little guy can take on Wall Street and the so-called “smart money” crowd.
What Determines A Stock’s Price?
For those that argue it’s all about fundamentals, we beg to differ. Case in point:
It’s all about supply and demand. If more dollars are buying the stock than selling, the price will go up and vice versa. If there are more buyers, stocks go up. More sellers and the price goes down.
Gamma Short Squeeze
Traders on r/wallstreetbets are focused on identifying companies with a lot of short interest and a limited number of shares available for trading. That makes things harder when short sellers have to scramble to buy back shares and close their positions. This kind of dynamic also helps push the price of a stock up, feeding the loop.
Traders are able to fuel the fire by buying call options. When a trader buys options, market makers that sell the options will go into the market and hedge their exposure with the underlying shares. So with a limited amount of capital, traders are able to magnify the moves. Combine this with the CNBC’s of the world talking about GameStop non-stop and it creates FOMO (Fear Of Missing Out). Investors blindly go in and buy GameStop hoping that it keeps climbing.
Further helping to drive the short squeeze was Elon Musk and Chamath Palihapitiya using their large followings to draw attention to GameStop.
— Elon Musk (@elonmusk) January 26, 2021
Both hate short-sellers and took great joy in adding fuel to the fire.
dear journal, today was busy:
1. bought some YOLO calls on $gme
2. announced i'm running for governor of CA?
3. bought more Li, Ni and Co supply for batteries
4. finished details of a new insurance company i co-founded
details of #4 coming tmr morning. lmk what you think…
— Chamath Palihapitiya (@chamath) January 27, 2021
How To Spot The Next GameStop
If you missed GameStop, don’t worry. There’s always a bull market somewhere. That’s why it’s important for investors to trade both OTC Markets and NASDAQ/NYSE. There are always opportunities if you give yourself the flexibility to trade all markets.
The strategy is to simply squeeze the shorts and we love this. It’s a momentum strategy that any trader can implement. Simply go to finviz.com and screen for stocks. Use the Top Gainers signal and screen for stocks with a float short over 10%. The strategy is that once a heavily shorted name starts running, momentum players jump on board and the shorts are forced to cover as the stock climbs. This is what we saw in GameStop, AMC, KOSS, Bed Bath & Beyond, BLNK, PLUG, WKHS, and even the dog shit stock Nikola.
Finviz shows you what % of the float is short and also how many shares are in the float.
For those stocks that haven’t run yet, you can check which stocks have a high short interest, over 20% of the float short. Click on charts and you can visualize the chart and make a determination from there.
Then you check wallstreetbets, Stocktwits, and Twitter to capture the sentiment. Are traders talking about the stock? Stocktwits in particular tells you all you need to know.
Short squeezes happen in all markets – bull or bear. Huge gains can be made in such a short amount of time, just like we saw with GameStop.
There are always opportunities in the markets and it’s our job to find winning stocks. Here at Insider Financial, we specialize in finding these types of situations for our subscribers. As we have stressed repeatedly to our subscribers, the key to trading is finding momentum BEFORE it happens and then be patient.
We got our subscribers in early on TSNP, which you can read our latest here, and ENZC, which you can read about here. It’s also best to own a portfolio of quality stocks. For some that can be as many as 10 to 20 or more penny stocks. This provides diversification and allows you to remain patient.
Now, when we say that we find momentum BEFORE it happens, we are investors looking to position our subscribers BEFORE the move happens. This is where the big money is made and why so many of our subscribers are sitting on gains of over 7750% in ENZC and over 36,150% in TSNP.
We always alert our subscribers first before we publish for our regular readers. This is the value of having a subscription to Insider Financial, which you can sign up for here. We alert our subscribers with our best ideas before our regular readers via email and SMS.
Now we know many prefer to day trade, but we are not day traders here at Insider Financial. It doesn’t suit our personality and we don’t like the intraday moves markets make. We have found we made more money being patient and ignoring the day to day noise of the markets.
If you want to day trade, Insider Financial is not the place for you. When it comes to day trading, and if that’s what you are after, we recommend the folks at True Trading Group, which you can check out their live streams here. They also captured the move in GameStop and AMC.
Remember, all it takes is one or two to become a GameStop or AMC and you’ve crushed the market indices for the year. Whoever said to avoid small-cap stocks has no clue what they’re doing.
As always, good luck to all (except the shorts)!
WHEN INSIDER FINANCIAL HAS A STOCK ALERT, IT CAN PAY TO LISTEN. AFTER ALL, OUR FREE NEWSLETTER HAS FOUND MANY TRIPLE-DIGIT WINNERS FOR OUR SUBSCRIBERS. WE SPECIALIZE IN FINDING MOMENTUM BEFORE IT HAPPENS!
Disclosure: We have no position in any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.