Back to the Well One Too Many Times

Shares of GameStop, easily one of (if not the) poster children for the sort of liquidity bonanza The Fed created since March 2020, popped hard last evening after the bell on news the firm plans to create a marketplace for non-fungible tokens, or NFTs.

As you know, NFTs have become the chic phrase du jour related to crypto. And the GME fanatics could not wait to usher in another super squeeze against "the suits."

At issue is whether they can replicate anything close to the sort of momentum and upside they enjoyed as we close in on the one-year anniversary of the epic short squeeze. 

I am extraordinarily skeptical they can do so, and in fact think there is a high probability they may fail miserably. First and foremost, the $160 level, as you can see on the GME daily chart, below, is offering tough resistance after the exuberant gap up this morning. 

But beyond that, and perhaps of most significance, is the fact that The Fed is tightening liquidity on many fronts, be it tapering alongside balance sheet reduction and rate hiking plans. Recall that one of the key components of the GME squeeze last year was centered around liquidity--The sheer number of GME shorts may have been correct in their microeconomic thesis but they failed to take into account the vast liquidity present in the options market to force an epic squeeze. 

That factor is significantly reduced now, and thus this may be a situation where the former predators unknowingly turn unto prey. In other word, I would be looking to buy puts in GME either today or next week, with an eye towards seasonality turning bearish later this month amid the liquidity reduction.