There is a lot of chatter around the Short Interest Ratio and we wanted to share some insight on this topic.
The excerpt below came from a great book by Harry D. Shultz - Bear Market Investing Strategies.
If we apply this logic to GameStop (GME), it was clearly a buy (in perfect hindsight) because the short percentage was 226% in in mid-January.
This is worth noting in the next short squeeze scenario.
The rise, fall, and rise of GameStop (GME) is difficult to ignore. We find it extremely entertaining but also educational. As a result of this, we started looking at reversion to the mean which has produced some amazing charts.
Before we jump to GameStop $GME, we want to show you the same model applied to Bitcoin (BTC-USD). We have plotted out the chart of Bitcoin with the 200 simple moving average (SMA), and a 1x standard deviation band. The spiked in Bitcoin only managed to reach +300% above 200 SMA. This was the rise of Bitcoin to 20,000.
With this context, let's look at GameStop. As of the January 28, 2021 close, the stock was +2,670% above its 200 SMA.
While we are not experts in options trading, the pricing for these derivative is absolutely puzzling. On the day that GameStop is up +70%, the March 19, 2021 $10 Put rose +46%. This is an option to sell GameStop at $10, -97% from today's price, within 49 days. There were more than 4,000 contracts traded before 10am today.
This is truly remarkable and we are observing this on the sideline.
On September 13, 2018, we provided downside targets for Tilray when it was trading at $118. The downside targets, based on the work of Edson Gould, were:
Because of the speculative activity in Tilray, we made a point of building downside targets for the stock if the price doubled to $236. At such a price, the downside targets were:
The actual intraday high for Tilray was $300 on September 19, 2018. This was a far cry above the initial trading price of $118 that the downside targets were constructed.
As seen in the chart below, the actual low has been $2.43 and Tilray currently languishes at a price of $16.80.
On January 19, 2021, we projected price targets for GameStop (GME) when the stock was quoted at $39.91. At the time, the downside targets were:
Since that article, GameStop has increased as high as $159.18.
Given what we’ve seen with Gould’s downside targets in the case of Tilray and other stocks, we still believe that the conservative downside target of $21.26 will be achieved.
Posted in Edson Gould, GME, Speed Resistance Lines, SRL, TLRY
| Symbol | Name | Trade | P/E | EPS | Yield | P/B | Pct from Yr Low |
| QCOM | QUALCOMM | 38.95 | 31.3 | 1.25 | 1.70% | 3.1 | 9.84% |
| ERTS | Electronic Arts Inc. | 17.77 | N/A | -2.3 | N/A | 2.3 | 13.18% |
| GILD | Gilead Sciences, Inc. | 47.42 | 16.8 | 2.82 | N/A | 6.7 | 14.79% |
| FSLR | First Solar, Inc. | 115.5 | 15.4 | 7.53 | N/A | 3.6 | 17.04% |
| SRCL | Stericycle, Inc. | 54.49 | 26.9 | 2.03 | N/A | 5.5 | 18.56% |
| APOL | Apollo Group, Inc. | 63.02 | 15.2 | 4.16 | N/A | 6.8 | 19.38% |
| GENZ | Genzyme | 56.91 | 36.9 | 1.54 | N/A | 2 | 20.85% |
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