After OpenDoor's "death by exposure," the "former department store giant" Kohl soared on Tuesday, with retail investors in the U.S. firing on all cylinders

As U.S. stocks return to new highs, retail investor speculation is back in full swing, targeting companies heavily shorted by institutional investors, staging a "Meme stock" short squeeze drama comparable to the 2021 GameStop saga.

On Tuesday, with almost no substantial news, the stock price of U.S. department store retailer Kohl's Corp once doubled after the market opened, reaching a 10-month high of $21.23, triggering a trading halt. Although the gains later receded, it still closed up 38% at $14.34. Trading volume surged dramatically, with a total volume of 183 million shares for the day, about 25 times its 25-day moving average volume.

In the options market, the stock ranked among the top ten most active underlying assets, with a total trading volume of 360,000 contracts, a 12-fold increase over the daily average, placing it among the top ten most actively traded options of the day, alongside giants like Nvidia and Tesla. Call options became the main focus, with the most active trades betting on the stock price rising above $17.50 before Friday.

Wallstreetcn previously mentioned that prior to this, another heavily shorted stock, online real estate platform Opendoor Technologies, had just experienced a surge of over 300%, followed by a significant 10% pullback on Tuesday.

These unusual fluctuations are almost unsupported by fundamental news and are interpreted by the market as typical retail short squeeze behavior, reminiscent of the meme stock frenzy triggered by GameStop and AMC Entertainment in 2021.

Analysts believe that against the backdrop of U.S. stocks repeatedly hitting new highs and ample market liquidity, some investors are shifting their focus from large blue-chip stocks to poorly performing but highly speculative low-priced stocks, attempting to achieve excess returns through precise targeting of short positions.

Retail Frenzy Reignited, Social Media Becomes "Rallying Point"

This trading frenzy targeting Kohl's mirrors the script from four years ago, with social media once again becoming a "rallying point" and amplifier of sentiment for retail investors.

On forums like Reddit's WallStreetBets, posts encouraging the buying and holding of Kohl's stock are rampant. "Let's go!" one user wrote on Tuesday, "Let the shorts feel the maximum pain, buy on the dips. We are strong when we unite."

Kim Forrest, Chief Investment Officer of Bokeh Capital Partners, bluntly stated: "Kohl's has many fundamental issues, but this crazy collective action precisely reflects the behavior pattern of retail investors, who quickly jump onto what we call 'Meme stocks,' hoping to make money from these high-speed momentum stocks." According to Bloomberg, retail investors have now become an important force in the U.S. stock market, accounting for 20.5% of total trading volume. Stocks priced below $5 account for more than 26% of overall trading volume.

Steve Sosnick, Chief Strategist at Interactive Brokers, refers to this phenomenon as a "flight to crap," believing that the recent rally led by large-cap stocks has encouraged many investors to engage in riskier investments.

Targeting Institutional Shorts

The core logic behind Kohl's stock price surge directly targets the massive short positions established by professional investors on Wall Street.

A short squeeze is a common scenario in meme stock rallies. When a heavily shorted stock unexpectedly rises in price, short sellers face losses. To cut their losses, they must buy shares to cover their positions, and this buying activity further drives up the stock price, creating a vicious cycle that puts immense pressure on short sellers.

According to Reuters citing LSEG data, approximately 49% of Kohl's issued tradable shares are shorted, such a high short ratio makes it a perfect target for retail investors to force a short squeeze.

The heavy shorting of Kohl's stems from its continuously deteriorating fundamentals. In recent years, as consumers have shifted to online shopping, the company's revenue has declined year after year. In May of this year, the company fired its CEO due to a personal relationship with a supplier, further exacerbating market pessimism. The trading prices of some Kohl's bonds have significantly discounted, indicating that debt investors are concerned about its long-term viability.

As of last Friday, Kohl's stock price has fallen by about one-third this year.

Concerns Behind the Market Frenzy

The current market environment is significantly different from that of 2021. Although the S&P 500 index has reached new highs, investors face a more severe macro environment: three months ago, the stock market plummeted due to Trump's tariff plans, and many Americans are still struggling with high inflation and a tough real estate market.

Michael O'Rourke, Chief Market Strategist at JonesTrading, points out that the enthusiasm for meme stocks often overlaps with the enthusiasm for cryptocurrencies, as many companies shift their business models towards digital assets, and this fervor is now spreading to meme stocks.

Mike Bailey, Research Director at FBB Capital Partners, warns that current market sentiment is "heading towards irrational exuberance," with investors showing less concern for the rising risk factors.