Wall Street Opens Higher as Squeeze on Hedge Funds Eases; Dow up 230 Pts

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Investing.com — U.S. stock markets opened higher on Monday, recovering just under half their losses from Friday’s session as the pressure eased on hedge funds to liquidate long positions to relieve the stress from their money-losing short positions.

The spectacular short squeeze in a handful of heavily-shorted stocks had triggered broad selling across the market as funds were forced to raise liquidity last week.  While the squeeze continued in some names in early trading, it appeared to have eased in others, causing them to give up some of last week’s gains.

By 9:35 AM ET (1435 GMT), the Dow Jones Industrial Average was up 231 points, or 0.8%, at 30,214 points. The S&P 500 was up 0.9% and the Nasdaq Composite outperformed with a gain of 1.3%.

AMC Entertainment (NYSE:AMC) stock was the biggest gainer of last week’s stars, rising another 24%, while Nokia (NYSE:NOK) ADRs added another 7.2%.

However, GameStop (NYSE:GME), the stock which symbolized the retail-driven squeeze of professional investors, fell 8.2% while Koss Corporation (NASDAQ:KOSS) stock fell 31%. BlackBerry  (NYSE:BB) stock was down 5.2%.

The loss of momentum in some of last week’s retail darlings represents a dangerous moment for those who were late to the rally, given that many of the squeezed names are now trading far above what even their original advocates considered fair value. 

“There will be consequences for the Reddit acolytes when the bubbles burst, ” said Paul Donovan, chief economist with UBS Global Wealth Management, in a morning podcast. “Bubbles just transfer wealth from bubble buyers to bubble sellers, and the longer these bubbles go on, the more likely it is that participants will be left having lost wealth.”

The biggest gainers in early trading were small and mid-cap silver mining stocks, beneficiaries of the switch in retail investor focus away from heavily shorted stocks to silver futures, which earlier hit an eight-year high over $30 an ounce before retracing to be at $29.59 an ounce as of 10 AM.  Comstock Mining (NYSE:LODE) surged 173% while Avino Silver & Gold Mines (NYSE:ASM) rose 63%. More established names such as Pan American Silver (NASDAQ:PAAS) also profited, rising 13.9%.

Earlier, the Institute of Supply Management’s purchasing managers index for manufacturing was revised down to 58.7 from 60, a steeper decline from December than first thought. There is little else in the way of economic data on the calendar on Monday, leaving the focus on speeches by the Atlanta Federal Reserve President Raphael Bostic and his Boston counterpart Eric Rosengren