Carvana Is Acting Like a Meme Stock. GameStop and AMC Closed Higher Too.

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GameStop shares took off during 2021’s so-called meme-stock rally.

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Justin Sullivan/Getty Images

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The meme stocks GameStop and AMC unexpectedly soared on Thursday, joined by the used-car retailer Carvana,
even as the broader market hit its lowest point in 2022.

It wasn’t clear what news, if any, was behind the gains.

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Early Thursday morning, shares of the videogame retailer GameStop (ticker: GME) popped more than 32% to $108.05. AMC Entertainment (AMC), the theater chain, rose almost 30% to $13.46. Trading for GameStop, which ended the day 10% higher, was halted four times. AMC closed 8% higher.

Carvana (CVN) joined the surge and rose as much as 48%, to $44.41, on Thursday, closing 25% higher from Wednesday. It was halted five times. These stocks rallied when the Dow Jones Industrial Average and the S&P 500 had both fallen by 1.5%, respectively.

But even with Thursday’s gains, GameStop and AMC are far from reaching their respective 2021 closing highs of $347.51 and $62.55. The two stocks rose spectacularly early last year as buying by retail investors—some of it among people exchanging trading tips on Reddit—shot the prices higher. those gains forced investors who had borrowed the stocks and sold them, hoping to profit from declines, to buy. Some hedge funds were caught by the so-called short squeeze.

Since then, both stocks have fallen sharply. GameStop has declined 40% year to date, while AMC has dropped almost 60%.

All three stocks have one thing in common: They are heavily shorted. About 29% of Carvana shares are available sold short, while GameStop has a short interest of 22% and AMC, 20%. On average, 4.8% of the entire US market and 2.23% of shares in the S&P 500 are shorted relative to what’s outstanding, according to Ihor Dusaniwsky, managing director of data analytics company S3 Partners.

Stocks with high levels of short interest are prone to sudden surges because price gains can force investors who have shorted the shares to buy to close their positions—what’s known as a short squeeze.

Wall Street is divided on Thursday’s wild market rally. Dusaniwsky said buy-side pressures were pushing up the stock prices of the three companies, not short squeezes. Instead of buying “vast majority [of short sellers] will grin and bear these one-day losses,” he noted.

Others disagree, at least when it comes to Carvana. “It’s primarily a short squeeze,” said Wedbush analyst Seth Basham. “We’ve seen a lot of the most heavily shortened, hated names squeeze higher today.”

He said there had been no specific catalyst driving the prices today, “other than momentum on a short squeeze begets more momentum.”

Write to Karishma Vanjani at [email protected]

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Credit: www.marketwatch.com /

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