The technique online investors used to stick it to GameStop stock short sellers plus others in the S&P 500 — and make billions instantly this year in the process — is running out.
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New research from S&P Global Market Intelligence shows short selling plunged to low levels in late February. Short-selling in GameStop (GME) stock alone crashed nearly 80%. That’s a problem for online “meme” investors who target heavily shorted stocks for easy, quick gains.
Other once heavily shorted stocks like health care play Ligand Pharmaceuticals (LGND) and consumer discretionary Bed Bath & Beyond (BBBY) are seeing similar drops in short interest, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
Are the meme investors victims of their own success?
Is The Wallstreetbets Bet Off?
Using online forums like Reddit, meme investors found quick riches by bidding up prices on hated stocks. The surges were so strong, the legions of investors betting against them — the “shorts” — kept losing money until finally buying the shares to close their bearish bets. The forced buying in depressed stocks sparked a “short squeeze” of stocks that raced up in days.
And yet, the rocket fuel powering the “short squeeze” craze is drying up.
Short interest in U.S. stocks fell to just 2.95% by the end of February, S&P Global Market Intelligence says. That’s down 45 basis points from the short interest level at the end of 2020 when it was 3.4%. Short sellers, it seems, simply couldn’t take the heat and got out. Many closed short positions rather than enduring more brutal losses as the shares rallied.
And the drops are bigger still in some individual meme stocks. Short interest on the 10 most shorted S&P 1500 stocks coming into the year is down by more than 50%.
Such short squeezes made left-for-dead names like GameStop stock some of the best of the year so far. GameStop stock is up more than 1,000% in 2021. And shares of the 10 most shorted S&P 1500 stocks coming into 2021, including those in the S&P 500, are up nearly 160% this year. That trounces the S&P 500’s 5.5% rise this year.
Shorts Throw In The Towel
And the averages don’t even tell the full story in just how beat up short-sellers are.
Short sellers controlled more than 97% of GameStop stock’s shares coming into 2020. It’s easy to see why many expected the company’s demise. The shift to gaming online is bearish for the company, knocking down its revenue, profit and prospects. But the inflated level of shorts wasn’t missed by Reddit traders, who launched a coordinated effort to pile into the stock.
And how much of GameStop stock is shorted now? Just 20.4%, down 77 percentage points. That’s the largest drop of short interest among any stock in the S&P 1500. Amazingly, though, it’s still considerably higher than the 3.8% of shares controlled by shorts, on average, among the S&P 1500.
Ligand Pharmaceuticals, a member of the IBD 50 list of leaders, is another stock that scared off its haters.
Coming into the year, short sellers controlled more than 60% of its outstanding shares. But unlike some other heavily shorted stocks, Ligand actually had positive numbers backing it up. Analysts think the company will make a profit in 2021, reversing a loss in 2020.
Investors piled into Ligand’s stock, pushing it up nearly 64% this year. That was enough to send short sellers crying for mercy. The level of shorted shares outstanding is down nearly 49 percentage points to 13.3%. And it sports an excellent IBD Composite Rating of 96.
What The Shorts Are Planning Now
Shorts are in retreat, but not gone. But meme investors might just need to cast a wider net.
The health care sector continued to see the highest level of short interest, on average, as of the end of February at 4.68%, says S&P Global Market Intelligence. That’s more than double the 2.28% level of shorts in the S&P 500. The sector’s relatively high level of short selling might be due to disruption in many companies in the industry due to the pandemic.
Consumer discretionary, GameStop stock’s sector, is the second-most shorted at 4.23%. And information technology is now the third most-shorted sector at 3.56%, S&P Global says.
The question, though, is are the shorts ready to play another game of chicken with Reddit?
Investors Pull Down Their Shorts
S&P 1500 companies seeing the largest drops in short interest this year (in percentage points)
| Company | Ticker | Stock YTD % Ch. | Sector | Short Interest (% Of Shares Outstanding) on Jan. 1 | % Short Interest Now | Drop In Short Interest (Percentage Points) |
|---|---|---|---|---|---|---|
| GameStop | (GME) | 1,004.9% | Consumer Discretionary | 97.7% | 20.4% | -77.3 |
| Ligand Pharmaceuticals | (LGND) | 63.4% | Health Care | 62.1 | 13.3 | -48.7 |
| Bed Bath & Beyond | (BBBY) | 75.2% | Consumer Discretionary | 60.7 | 21.2 | -39.5 |
| Macerich | (MAC) | 26.1% | Real Estate | 54.0 | 23.3 | -30.6 |
| Macy’s | (M) | 78.9% | Consumer Discretionary | 34.8 | 14.7 | -20.0 |
| AMC Networks | (AMCX) | 113.3% | Communication Services | 38.0 | 19.1 | -18.9 |
| 3D Systems | (DDD) | 185.1% | Information Technology | 27.6 | 9.1 | -18.6 |
| Tanger Factory Outlet | (SKT) | 71.3% | Real Estate | 47.9 | 31.1 | -16.8 |
| The Children’s Place | (PLCE) | 64.4% | Consumer Discretionary | 34.6 | 19.0 | -15.6 |
| iRobot | (IRBT) | 59.4% | Consumer Discretionary | 36.1 | 20.6 | -15.5 |
Sources: IBD, S&P Global Market Intelligence
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