What happened
Reddit's army of individual investors appears to be growing ever more powerful. After taking some time to regroup and emboldened by their recent success with AMC Entertainment (AMC), these traders launched a major counteroffensive on Wednesday -- one that helped to drive the prices of multiple stocks sharply higher.
Here's how some of the most popular stocks on Reddit fared today:
- Koss (KOSS -0.98%), up 69%
- Naked Brand Group (NAKD), up 29%
- GameStop (GME 2.56%), up 13%
- Rocket Companies (RKT -2.79%), up 13%
- Ashford Hospitality Trust (AHT -7.09%), up 15%
So what
AMC Entertainment rocketed 95% as people ramped up their promotion of the stock on Reddit, Twitter, and other social media sites. By coordinating their purchases, these investors hope to fuel a steep rally in AMC's stock price and ignite a massive short squeeze.
Forcing short-sellers to vacate their positions by buying back the shares they shorted can accelerate a stock's price gains. And this short-squeeze cycle can perpetuate until many short-sellers capitulate.
Image source: Getty Images.
For today, at least, the bulls were largely successful. And the pandemonium appeared to spread to other heavily shorted stocks.
After languishing for weeks, Reddit favorites GameStop, Naked Brand, Koss, Rocket, and Ashford Hospitality all rallied, even though there was no company-specific news to explain their explosive stock-price moves.
Now what
Stock-promotion schemes and short squeezes can bring about shocking price swings. But these moves can't continue forever. When they end -- and they always end -- investors who bought late in the rally can suffer devastating losses.
