GameStop reverses higher, rises 16% as the stock shakes off new broker limits on trading

GameStop shares moved higher in the choppy opening minutes Thursday after brokers restricting trading on the stock appeared to spark a sharp decline for shares in premarket trading.

The stock was up more than 25% shortly before 10 a.m. ET after falling at the opening bell. Shares were soaring at one point in premarket trading, topping $500 apiece briefly in premarket at one point. The stock started to fall as word spread that Robinhood and Interactive Brokers were restricting trading.

The wild moves a more than 130% rally on Wednesday in heavy volume, pushing its week-to-date gains to 466%. The stock was worth about $40 just a week ago.

Thursday morning David Tepper, Appaloosa Management Founder, told CNBC investors should be careful playing in speculative names.

“It was partyon.com in 1999 that screwed the shorts and now it’s gangup.in. It didn’t end well in 1999 when the dot com bubble popped. Been there done that. Old scars,” he told CNBC’s Joe Kernen.

GameStop has been a red-hot target in the WallStreetBets Reddit chat room where an army of at-home retail investors came together in pushing shares higher and squeezing out short-selling hedge funds. The forum, which now has more than four million members, briefly went private Wednesday night as the moderators said they were “unable to ensure Reddit’s content policy.”

One trending post Thursday said “don’t be scared of the drop in $GME $BB. Hedge funds trade after hours to scare y’all…KEEP BUYING AND HOLDING.” The post quickly drew more than 1,000 comments in an hour.

Another top post in the community said “buy high, sell never,” featuring a photo of GameStop.

Some of the passionate Reddit users have been sharing screenshots of their brokerage accounts, showing monstrous returns from trading in GameStop and other names.

“The action in GameStop’s stock is a game of musical chairs and my advice for investors is to sell before the music stops,” said David Trainer, CEO of New Constructs. “As fickle as the trading mob has been to select GameStop as one of their favorite stocks, they could be just as fickle as to when to let the stock drop.”

The Reddit crowd started targeting other heavily shorted names including Bed Bath & Beyond and AMC Entertainment.

AMC skyrocketed 300% on Wednesday alone, bringing its weekly rally to over 450%. In the previous session, more than one billion shares changed hands in AMC, marking its highest volume day ever. Bed Bath & Beyond has also surged 75% this week. The duo dipped slightly in premarket trading on Thursday.

The extreme speculative behavior among rookie investors is unnerving many on Wall Street as mounting losses by hedge funds could spill over to other areas of the market. Some also believe this buying frenzy could hurt overall market confidence and destabilize the conditions.

The S&P 500 and the Dow Jones Industrial Average suffered their biggest loss since October on Wednesday as concerns about the mania deepened.

Reddit co-founder Alexis Ohanian said Thursday that GameStop’s trading frenzy marked a turning point in the U.S. investing landscape.

“I do think this is a seminal moment. I don’t think we go back to a world before this because these communities, they’re a byproduct of the connected internet,” Ohanian said in a “Squawk Box” interview. “Whether it’s one platform or another, this is the new normal.”

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