In the stock market there is desire to look for patterns and find a reasonably predictable way of making some money. There are multiple ways to do this because the stock market is regulated and information flows. In terms of regulations, companies on the stock exchange need to report their earnings quarterly, companies need to file reports on when they issue more bonds and stocks and there are numerous other company filings. Recently it was released how the largest investors did to their holdings and you can do what you want with it.

In the stock market, while most people expect prices to go up, there are some who expect prices to fall or short the market. The bulls and bears are important elements of the market. For the bears, if a company is headed toward bankruptcy or its business models has been disrupted or fundamentally changed and it has not changed its business models, those who short the market offer to those that want less risk a way to avoid some stocks. If the overwhelming majority believe a stock is to be shorted, it stands to reason most of the time they are correct, but there are exceptions.

In an article by Medha Singh and Laura Matthews of Reuters, the exception seems to be meme stocks. 3 years ago, stocks such as GameStop and AMC and a few others were among the highly shorted stocks because of their business models had changed. For GameStop which caters to gamers, if gamers can download their games online, why do you need a brick and mortar store? for AMC there was COVID issue of people gathering and streaming services – where do you want to watch a movie home or a theatre? There were very good reasons why the stocks were some of the most shorted on the exchange. Then along came online forums such as Wall Street Bets and a desire to change Wall Street. People led by Roaring Kitty a social media influencer, bought option calls and the stock to help create a short squeeze to push up prices. GameStop was over 100% shorted which meant as prices rise, those that are short need to buy shares to stop their losses (or margin calls). Since the stock is short supply, and demand is high, prices rise even more than normal. After a few days, the rally goes back to normal as shorts are covered.

The pattern if this is to be normal, a regular investor may wait 6 months for GameStop to fall in price and begin to pick up shares. 3 years ago, the prices rose to from $5 to over $70. This time the prices went from $17 to $48, a healthy gain but only for a few days. If you do decide to buy, ensure you sell or take profits.

Linking to dividend paying stocks, looking for patterns is the key to making money trading, however for longer term investing the pattern of paying dividends every quarter and the raising of those dividends means you can trade less and hold more often.

There are more questions than answers, till the next time – to raising questions.