48 Hours of Market Turmoil: Wall Street Loses Billions as Retail Investors Rally Behind GME Before Being Blocked

January 27th marked a historic day for U.S. stock markets.

The three major U.S. indices plunged simultaneously: the Dow Jones fell over 630 points, Nasdaq dropped more than 2.6%, and S&P 500 declined 2.57%. Amid this broad market downturn - to put it bluntly, "most stocks tanked" - one stock defied the trend: GameStop (GME) skyrocketed 120%, capturing everyone's attention.

The Unexpected Rise of GameStop

GameStop Corporation (GME) is an American video game retailer founded in 1984 and headquartered in Grapevine, Texas. With 6,457 stores across the U.S., Canada, Australia, New Zealand and Europe, it's a global operation. However, its outdated business model had kept its stock performance lackluster... until recently.

By January 27th's close, GameStop hit $347.51 per share - compared to just $39.36 on January 20th, representing a staggering 7,828% weekly gain. Rewind to 2019, the stock typically traded in the single digits, often hovering around $2-3.

For such an unremarkable, struggling company to cause this market earthquake clearly had nothing to do with fundamentals or positive news. This was retail investors' ruthless counterattack against Wall Street institutions.

David vs. Goliath: A Revolutionary Showdown

Financial institutions have always dominated stock markets, with retail investors typically following their lead to profit.

But often, when institutions deliberately short stocks to profit from price declines, retail investors become the "bag holders." This longstanding resentment came to a head with GameStop, thanks largely to short-seller Citron Research.

While normal investing means "buy low, sell high," short selling works in reverse.

iTalkBB explains: How short selling profits institutions.

Brokerages hold clients' stocks - say 200 GameStop shares between Clients A and B. To short 100 shares, they sell A's 100 shares without owning them ("borrowing" to sell). This is essentially betting against A: when GameStop falls, they repurchase cheaper shares to return to A, pocketing the difference.

If A wants to sell, brokerages might transfer B's shares to A first - robbing Peter to pay Paul. But if B also sells, brokerages must cover by buying shares at market prices to return to B.

Here's where it gets interesting. Normally institutions control this game. Citron began shorting GameStop by publishing negative analyses to drive down its price. But this time, retail investors saw through the tactic and fought back.

Organizing on Reddit's WallStreetBets forum, they collectively bought GameStop to drive up its price, forcing short sellers into a "short squeeze" where rising prices compel them to buy back shares at losses. At sufficient highs, this bankrupts short sellers.

When Elon Musk tweeted about GameStop on the 27th, Reddit users went berserk, sending the stock to $347.51 - far beyond short sellers' expectations. Citron and others had to buy back shares at huge losses.

Emboldened, retail investors then targeted other heavily shorted "meme stocks" like struggling AMC Theatres and BlackBerry, inflicting more pain on short sellers.

On January 28th, trading platforms like Robinhood and Schwab restricted purchases of GameStop and other volatile stocks - allowing only sales. This effectively cut off retail investors while bailing out short sellers.

Why? Users discovered Citadel - owner of Robinhood - is connected to Melvin Capital, a major GameStop short seller that lost billions. The cozy relationship between Citadel, Melvin, and Robinhood raised eyebrows about market fairness.

Whether it's institutional short selling or retail investor rebellions, gains and losses are market realities. iTalkBB reminds you: Markets carry risks - invest carefully.

Stock investments aren't guaranteed, but safety investments always pay off!

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