CNBC’s Jim Cramer voiced strong caution against shorting Kohl’s stock, drawing parallels to the infamous GameStop short squeeze that captivated the market four years ago. Cramer referred to the current situation with Kohl’s as one where short sellers have pushed too hard, creating a potential trap for themselves. He advised them to reconsider their positions before facing another unexpected surge reminiscent of GameStop.
On Tuesday, Kohl’s stock experienced significant volatility, with trading being halted at one point during the day. Ultimately, the stock closed with a remarkable increase of 37.62%. As of now, nearly 50% of its outstanding shares have been sold short, as reported by FactSet.
Cramer pointed out that the reason for the stock’s surge isn’t necessarily linked to positive developments within the company’s business, such as its partnerships with Sephora and Amazon, but rather the overwhelming short positions that have drawn attention from retail investors. He noted that when a stock has a significant number of short positions, it sets the stage for a potential short squeeze, as seen in prior instances discussed within the Reddit forum Wall Street Bets, which played a crucial role in the GameStop phenomenon.
He further analyzed Kohl’s financial health, suggesting that while the company might not be thriving, it is far from being a candidate for imminent collapse—a factor that he believes short sellers overlooked. Cramer emphasized that this situation should prompt hedge funds to cover their short positions to avoid unnecessary losses.
It’s crucial for investors to heed Cramer’s warnings about the dynamics of the stock market, particularly in the context of extreme short selling. Such scenarios can create unexpected opportunities for both investors and traders, reminding everyone involved of the unpredictable nature of market movements.