Stock of the week - Bed Bath & Beyond (18.08.2022)

Most investors and stock market enthusiasts remember the famous "short squeeze" on GameStop shares, when a group of individual investors from the WallStreetBets group of Reddit forums caused the stock price to explode as a result of the so-called "squeeze" of short positions that hedge funds held on the company's stock. The example of the company Bed Bath & Beyond shows that history, even if one to one does not repeat itself, likes to rhyme.

David VS Goliath

Recently, the phrase Bed Bath & Beyond does not disappear from the headlines of investment forums. The company has experienced an explosion in share prices prompted by the disclosure of the company's stock holdings by the CEO of GameStop (GME.US), which is well-known among retail investors, Ryan Cohen. Cohen now holds a 10% stake in BBBY.US through the RC Ventures investment fund. BedBath&Beyond has historically been viewed as an 'unwanted' competitor to big chains like Amazon, which in addition may make sentiment among the Reddit community extremely positive. It's no surprise, then, that the company has found its way onto the investment radar of the Reddit community, which, after the success of squeezing short positions on GameStop, came to believe that it could beat the big Wall Street hedge funds in the short term. In a nutshell, short position squeezing involves artificially "pumping up" the stock price of a particular company on which large hedge funds have taken significant short positions (i.e., betting on the stock price to fall). As a result of the dynamic increase in the price of the stock caused by the massive buying of shares by an organized group of individual investors, the funds are forced to cover their losing short positions, which only drives up the stock price of the company in question even further. The whole "fun" is to "jump out" of this investment rocket in time, before it runs out of fuel. And this is not easy, especially if, given yesterday's maximum, the stock has risen more than 550% from its July 27 minimum. In other words, the stock has risen more than six times in just 15 trading sessions.

"Greed is good"

This famous phrase from the movie Wall Street uttered by Gordon Gekko guides investors looking to cash in on the short squeez of BBBY shares. In this case, good old fundamental analysis does not apply at all. All that comes into play are nerves of steel and greed kept in check so as not to try to forcefully sell at the top. However, greed whispers the question, where might the potential peak be located? It seems that the $30 area should be watched closely. This zone marks not only yesterday's maximum, but also the 2022 maximum. A breakout above this level, which is not negated, could pave the way to $35. Above $35, the important level is the $43-$43.50 zone, which is the 78.6% retracement. If the stock breaks through this level, it could pave the way to $50 and the 2021 peak near $54. This is, of course, pure speculation fraught with considerable uncertainty, especially since markets were hit yesterday by news that Ryan Cohen had filed with the SEC his intention to sell his entire holding in BBBY. 

In search of a peak

When deciding to sell your holdings, it may sometimes be worthwhile to follow the example of the good old stock market saying that "the last 10% of growth is worth giving to the market" and not reach for the "pigeon on the roof." Especially if the value of the held "sparrow" has already risen more than 500%. 

Chart of Bed Bath & Beyond (BBBY.US) stock price, D1 interval. 

Source: xStation 5