Ever since GameStop (NYSE:GME) reported surprisingly high Q4 earnings, investors have been eyeing it for another short squeeze. InvestorPlace markets analyst Thomas Yeung reports that an “accidental squeeze” is likely due to the company’s low float. However, that isn’t the only reason that markets may need to prepare for another GME stock squeeze.
The cost to borrow (CTB) GME stock shares has risen steadily since the earnings, reaching levels too high to ignore. Earlier this week, it had risen by as much as 60%, but today it has spiked by roughly 200%, according to the available data from Fintel. The higher the borrow fees rise, the more likely we will see another GameStop squeeze.
What’s Happening With GME Stock
Since the iconic short squeeze of 2021 that created the meme stock revolution, investors have been waiting for the next short squeeze. Since GME stock led the charge the first time, the r/WallStreetBets (WSB) crowd has been waiting for it to happen again. The video game retailer recently shocked experts, surpassing Wall Street expectations and reporting its first quarterly profit in two years.
Granted, GameStop isn’t the only meme stock whose CTB is skyrocketing right now. Borrow fees for fellow WSB favorite AMC Entertainment (NYSE:AMC) soared 215.80% yesterday, up more than 100% since the previous reading early in March. It is common for AMC to follow suit when short interest in GameStop is on the rise. And right now, the CTB GME stock is rising quickly, moving from 11.14 on March 17 to 33.15 today. That 200% increase will have retail traders on their toes as they anticipate the next big squeeze. As InvestorPlace assistant news writer Eddie Pan reports:
“In a tweet, S3 Partners Managing Director of Predictive Analytics Ihor Dusaniwsky noted that short interest for GME is 21.79% of the float with a value of $946 million. That figure seems high enough to drive a short squeeze, as any reading above 10% is considered high. He also mentioned, ‘Release the hounds, let the short squeeze begin.'”
The CTB or borrow fees refer to the yearly rate paid by short sellers who want to borrow a stock. Like many market forces, it is driven by supply and demand. If there is a high demand to borrow shares of GME stock, it will push the CTB up. This rate often indicates that available shares are in short supply. Pan also notes that a 10% CTB is generally considered high, while a 20% CTB is considered very high.
By that logic, the rate at which GameStop is rising should indicate that a short squeeze is likely, as Dusaniwsky indicated.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
