Shares of GameStop and AMC Entertainment soared for a fourth day running on Wednesday, forcing hedge funds to retreat from heavy losses and sparking calls for scrutiny of a social media-driven trading frenzy.
Short-seller Citron, a target for some of the individual traders who have helped drive huge gains for a number of niche Wall Street stocks in the past week, said in a video post it had abandoned its bet on GameStop shares falling.
With commentators and lawyers calling for scrutiny of the moves, Nasdaq chief Adena Friedman said exchanges and regulators needed to pay attention to the potential for "pump and dump" schemes driven by chatter on social media.
The Securities and Exchange Commission declined to comment.
Mainstream commentators have questioned the justification of moves in a number of heavily hyped stocks in recent days, at a time when some on Wall Street are wondering if months of stellar overall gains have driven shares into bubble territory.
GameStop's stock has surged nearly 700 percent in the past two weeks, upping the struggling video retailer's market value from $1.24 billion to more than $10 billion. BlackBerry is up 185 percent and on course for its best month ever.
Along with AMC and Nokia Oyj, the two were again among the most heavily traded in pre-market deals, with Reddit discussion threads again humming with chatter about the stocks.
"These are not normal times and while the (Reddit) ... thing is fascinating to watch, I can't help but think that this is unlikely to end well for someone," Deutsche Bank strategist Jim Reid said.
The advent of easy-access apps like Robinhood that allow ordinary Americans to make stock market trades at almost no initial cost has spurred a boom in direct investment over the past year as trillions of dollars in official stimulus drove markets higher.
On GameStop, the retail army has pitched itself against some of the institutional short-sellers — a traditional area for hedge funds — who promote and bet on falls in companies they judge as weak.
Overall, short sellers in GameStop were down $5 billion on a mark-to-market, net-of-financing basis in 2021, which included $876 million of losses early Tuesday, according to analytics firm S3 Partners.
Barron's reported late on Tuesday that the top securities regulator in Massachusetts believes trading in GameStop stock suggests there is something "systemically wrong" with the options trading around the stock.
Others say that the trades are at the end of the day up to the investors who make them.
"The SEC has investigated Robinhood before, but when you have a structure in place that allows the zero-cost trading platforms to operate — how do you stop that flow?" said Neil Campling, head of tech media and telecom research at Mirabaud Securities.
Trading in GameStop stock was halted for volatility nine times on Monday and five times on Tuesday.