The short-squeeze saga, engineered on social media, continues to obsess the market Friday morning. The story is influencing market action more than earnings, politics, economic news, and fundamentals. The issue is not just the huge moves in a few stocks such as GameStop (GME) and AMC Entertainment (AMC) but the ability of small traders, acting in concert, to influence other aspects of the market.
Two good illustrations of what is going on are surges in silver and silver miners and bitcoin (GBTC) . There is no fundamental reason for silver to suddenly jump, but it has been the focus of some of the small traders on social media, and this is making it self-fulfilling. The silver miners are being bought primarily because of the belief that other small traders will have a sustained interest in seeing those stocks run higher. That isn't any different than what happens in the ordinary course of trading, but this time the message is being communicated in a clearer and more concise way to the army of small traders.
Some on Wall Street call this action "manipulation," but it isn't much different than when an analyst sets a very high price target on a stock like Tesla (TSLA) . Whether there is a basis for the valuation is highly subjective, but just the fact that there is a target can be enough to create strong momentum as buyers act in a coordinated way.
Thursday I discussed the potential for bitcoin and related stocks such as GBTC, Marathon Patent Group (MARA) , Riot Blockchain (RIOT) , Canaan (CAN) , and MicroStrategy (MSTR) to benefit from the small investor movement that is gaining traction. Elon Musk added a bitcoin hashtag to his profile, and that is helping to drive the crypto market higher Friday morning.
The major indices are indicated lower Friday morning primarily due to the distraction that this short-squeeze drama is creating. Some large funds have been forced to sell down long positions in order to cover losses created by short-squeezes, but this is more about buyers standing aside while they try to develop a better feel for the emotions that are impacting the market and the potential short-term consequences.
Stocks have needed some consolidation and resets, and this short-squeeze drama has turned into a good excuse for it. As usual, none of the pundits saw this development coming, but it is hitting at the perfect time to justify some much needed corrective action in various aspects of the market.
The key to navigating the market right now is to watch the themes. The aggressive trading money is in hot pursuit of the next idea. Friday morning it looks like it is bitcoin, but it could easily move back into other themes like SPACs, EVs, solar energy, etc., very fast.
This market is very unsettled right now as it deals with the rise of coordinated social media traders, but this is just the natural evolution of something that has been developing for a very long time.