GameStop Pares Meteoric Rally as Melvin Said to Close Short

(Bloomberg) -- GameStop Corp.’s wild ride continued in premarket trading as the stock whipsawed following reports that Melvin Capital had closed out its short position.

The shares were up 66% at $245 as of 6:37 a.m. New York time, having earlier more than doubled from the last close of $147.98. That followed Tuesday’s 93% surge, which meant GameStop has risen more than eightfold this month in a dizzying rally fueled by Reddit-charged day traders.

Following a frenzied session on Tuesday, the stock’s gains reached new extremes outside regular hours after Tesla Inc. chief Musk tweeted a link to a Reddit thread about the company. Famed fund manager Michael Burry warned that the manic rally has gotten out of hand, calling the stock’s rise “unnatural, insane, and dangerous.” Gabe Plotkin’s Melvin Capital closed its short position Tuesday afternoon, CNBC’s Squawk Box reported.

Another note of caution was provided Wednesday by Bank of America Corp. analysts. While raising their price target to $10 from $1.60 to reflect the stock’s recent surge, they noted that GameStop is in “a weaker not a stronger place” and reiterated their underperform recommendation.

“While it is difficult to know how much very high short interest and retail ownership could continue to put upward pressure on the shares, we think fundamentals will again factor into valuation,” analysts led by Curtis Nagle wrote in a note. “We remain skeptical on the potential for a turnaround.”

Euphoria born in day-trader chat rooms has turned GameStop into the biggest story stock of the retail era, its improbable surge an emblem of the newfound power of individual investors. At the same time, it’s become a major headache for institutional investors betting it would fall. An epic short squeeze lifting the shares has set off a search for other companies that might be similarly vulnerable, with Express Inc., Bed Bath & Beyond Inc. and AMC Entertainment Holdings Inc. among stocks surging in premarket trading on Wednesday.

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