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How Will This Wild GameStop Saga End? The Ghosts Of Trading Catastrophes Past Offer Clues

Champions of GameStop’s jaw-dropping stock surge portray it as a victory by long-suffering mom-and-pop investors over nefarious Wall Street institutions, but some veteran market observers see parallels with past trading catastrophes that ultimately left those same individuals holding the bag.

Richard Smith, executive director of the Foundation for the Study of Cycles, compared the run-up in shares of GameStop, along with other heavily shorted shares targeted by an army of individual investors via forums like Reddit’s WallStreetBets, to past market bubbles, albeit one that has materialized rapidly.

At some point, the pool of buyers will be exhausted, he and other market observers have warned, leaving the prices of shares that have soared purely due to trading flows to potentially collapse. Read more…..

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