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How the GameStop Short Squeeze Roiled Retail Stocks

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The short-squeeze play that sent shares in GameStop skyrocketing and garnered huge national attention now seems to have broadened to include some retailers.

Simply stated, investors who short a stock are betting that the shares will go down. Some stocks are heavily shorted, often companies that appear to be distressed and are viewed by many to be candidates for bankruptcy. Sometimes there can be a sudden influx of heavy buying, such as what happened earlier this week with the struggling video-game retailer, when amateur traders—many who got the idea from social platforms like Reddit—began buying shares to target the short sellers. But the concerted buying of those shares also pumped up the stock price, forcing shorts to get out of their positions. This is called a short squeeze, which drives the price even higher.

That essentially is how GameStop saw triple-digit gains this week and hit an opening price of $379.31 on Friday just days from an opening price of $42.59 on Jan. 22.

One analyst, who requested anonymity, said it seems traders are looking for new targets of heavy short activity and many have set their sights on retail. That could explain why a stock such as Express Inc., which is attempting a digital transformation, saw shares climb 27.6 percent in trading on Friday.

Express’ previous close was $4.70 a share. It opened at $7.48 when Friday’s trading session began and closed at $6, with more than 50 million shares having changed hands, versus a three-month average trading volume of 20.1 million. Chico’s FAS Inc., a struggling women’s chain, saw its shares close on Thursday at $2.25. It spiked as high as $2.80 on Friday before closing virtually flat with a trading volume of nearly 6 million shares, versus a three month average of 2.4 million. Bed Bath & Beyond has also been seeing unusual buying activity recently. Its shares closed up 5 percent on Friday.

How this all plays out is anyone’s guess, but the analyst said the trading activity could continue for a few more days. “The amount of trading is incredible. These are [nonprofessional] people pushing up prices very sharply to squeeze the shorts.”

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