What happened
Shares of Qutoutiao (QTT) were soaring today even though there was no news on the Chinese mobile entertainment company. Instead, a possible short squeeze seemed to drive the surge in the stock, as shares closed up 61.3% on exceptionally high volume.
So what
Qutoutiao stock had been hit hard in December; the company had struggled since July, when Chinese state television (China Central Television, or CCTV) accused the company of selling suspicious ads with false information at an awards show.
Image source: Getty Images.
Today, a group of traders seemed to pile into the stock, triggering a likely short squeeze as buyback orders were probably automated. Just in one day, 118 million shares exchanged hands, compared to an average level of 2.1 million over the last three months -- an extraordinary high volume for this small-cap stock.
About 12% of Qutoutiao shares were sold short as of the end of December, and many of those bears likely closed out their bets on Qutoutiao.
Notably, this wasn't only the small Chinese stock jumping today on no news. Uxin, an online used-car dealer, finished the day up 20%, and several Chinese education stocks rose by double digits.
Now what
The huge jump in Qutoutiao shares is also a reminder that the stock market is highly volatile and frothy these days, and day traders have seized on the boom in recent months to try to make a quick profit.
Qutoutiao shares are now the highest they've been since March. But this isn't a typical recovery story: The company's revenue fell 20% in its most recent quarter, as it's still dealing with blowback from the accusation by CCTV.
Given the mystery behind today's surge, this is probably a stock best avoided -- those gains could easily be given back.
