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The GameStop shares ripple is helping other stocks but for how long?

The GameStop share price spike has raised eyebrows and stock prices. With Reddit users fuelling a large boost for GameStop shares, other companies, including AMC, have all enjoyed a ripple effect, but how long can it last?

  • GameStop price movement causes ripple effect.
  • AMC and Blackberry shares spike amid ‘psychological’ movement.
  • Will GameStop value continue to rise or will regulators stop Reddit pump?

Analysts have been tracking an unprecedented run for GameStop (GME.N) shares this week. Prompted by users of the WallStreetBets (WSB) sub-reddit, the rush of activity has resulted in shares moving from $39 to more than $470 in just over a week. Doug Clinton, the co-founder of Loup Ventures, has described it as an intriguing trend that’s more about humans than money.

Does the GameStop share price ripple effect make sense?

In Clinton’s view, it ‘doesn't make business sense’ but it does make sense from ‘an investor psychology standpoint’. His point is that the latest GameStop share price isn’t based on any underlying value in the company. Instead, it’s based on the attitude of investors. In this case, that’s the self-proclaimed ‘degenerate’ investors from Reddit who appear to have a vendetta against Wall Street short-sellers.

This emerging battle between business and psychology is reverberating across the markets. What’s now being described as the GameStop ripple effect is leading to upswings for other companies.

The Blackberry (BB.N) share price has jumped from $14 on 22 January to a high of $28 on 27 January. Also caught up in the buzz is AMC (AMC.N). The AMC share price has been flat since the start of 2021 due to COVID-19 restrictions keeping moviegoers out of theatres. However, following interest from WallStreetBets and a barrage of AMC logos on various social media platforms, shares spiked 300% between the 26 and 27 January.

The GameStop ripple effect is also helping unexpected targets. A small mining company from Australia saw its shares increase by 50% overnight. GME Resources (GME.AX), which trades on the Australian Securities Exchange (ASX), saw its share price increase from AU$0.075 to AU$0.10 on 28 January. Why? Because it’s ASX code (GME) matches that of GameStop. In other words, all ripples lead back to GameStop and, in turn, Reddit.

What is the ripple effect all about?

For analysts like Clinton, this is the reason business and psychology are at loggerheads. Moreover, it’s the reason we’re seeing a ripple effect. The question now is how long will GameStop shares continue surging and will other companies get caught up in the rush? WallStreetBets have shown that their fight isn’t for GameStop but against Wall Street short-sellers. This means any company the group focuses on could receive a pump. However, the movement may be coming to an end.

The White House has issued a statement saying that it is ‘monitoring the situation’. Nasdaq's chief executive Adena Friedman has also said she will ‘halt’ a stock if anonymous social media posts are fuelling ‘pump and dump’ schemes. Will more stocks become unwitting benefactors of the GameStop ripple or will the WallStreetBets movement run into an insurmountable roadblock?

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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