It was a case of sell-off? what sell-off? on Thursday for US investors and Friday is shaping up as a continuation of the rebound here in Australia with one proviso.
There’s an 84 point gain pencilled in for the ASX today from overnight futures trading but that surge seems to have ignored a big drop in iron ore prices on Thursday that will see the shares of BHP, Rio Tinto and Fortescue savaged.
That will be after Wall Street rebounded on Thursday by just under 1% a day after the savage 2% plus slide on a short sellers being squeezed in a host of speculative stocks triggered widespread selling.
The Dow ended Thursday up 300 points or 0.99% – at one stage it was up more than 600 points after trading was restricted in some speculative stocks.
The S&P ended up 36.6 point or 0.98% after being up over 80 point or more than 2% and the Nasdaq was still up half a per cent, or 65.5 points at the close, but at one stage had been up more than 230 points.
Tightened trading rules from some trading platforms helped release the pressure on the short squeeze and shares in highly traded stocks like Game Stop and AMC slumped.
Tens of thousands of retail investors trading mostly off a Reddit forum called Wallstreetbets that has routed triggered Wednesday’s slide as they sent share prices in highly shorted stocks soaring, took a big hit on Thursday when online brokerages Robinhood Markets and Interactive Brokers restricted trading in GameStop and several other social-media darlings stocks that had soared in recent days.
Retail investors, celebrities and policymakers whined about the restrictions, especially online, accusing the trading platforms of trying to protect Wall Street’s interest at the expense of smaller investors.
But these restrictions are routine when speculation gets out of hand.
The actions by the platforms were the same as commodity platforms routinely do when trading in gold, silver, oil or copper have gotten out of all proportions with an immense speculative surge (exchanges did it in the now notorious slump to minus $US37 a barrel on Nymex in New York in April, 2020).
Chinese regulators have routinely imposed margin, quantity and other limits and the Dalian Commodity Exchange currently has limits in place to try and reduce/control the amount os speculation in iron ore prices.
Until Thursday, it appeared retail traders had the upper hand. Coordinating on forums such as Reddit’s popular Wallstreetbets, their concentrated buying forced hedge funds to unwind short positions in companies such as GameStop and American Airlines, sending their shares soaring.
GameStop, the video game retailer whose 1,700% rally has been at the heart of the past week’s speculation, initially rallied to more than $US480 a share on Thursday
It closed down around 44% at $US193. But they jumped another 39% in after hours trading to $266.88.
AMC’s value was cut in half and shares in another favourite, Koss Corp (a maker of headphones) dropped by a third.
Reuters said that citing market volatility and the need to keep investors informed, Palo Alto-based Robinhood said in a blog it was halting trading of viral stocks including American Airlines, Nokia and AMC and raising margin requirements for certain securities.
Interactive Brokers, another online trading platform, also restricted trading in those stocks, according to Reuters.
