Shares in Pearson and Cineworld had remained buoyed by London close today, having sparked speculation of a major short squeeze fuelled by Reddit day traders.
Education giant Pearson led the FTSE 100 risers, with shares up almost 12 per cent, while Cineworld was trading 12.5 per cent higher.
By the close Pearson was up nearly 14 per cent, while Cineworld had dropped slightly to 12 per cent.
Both companies are among the most shorted London-listed stocks, with short positions of 8.7 per cent and 8.9 per cent respectively, according to the Short Interest Tracker website.
“My bet is that this is shorts covering their arses having seen what has happened across the pond,” said Neil Wilson at Markets.com. “It’s about managing risk and the fact is when short your potential losses are infinite.”
“I would think there is the possibility some traders and hedgies are also maybe front-running it by taking on big long bets to ride the news flow. There may be some Reddit users here deciding to pick their own targets too.”
Wilson added: “It’s all rather manic and not a sign of smoothly functioning markets to be honest.”
It comes after a battle broke out between short sellers and online traders on messaging site Reddit over US video game retailer Game Stop.
The feud started last week after short-seller Citron Research said it had placed a bet against the stock and that the company was “pretty much in terminal decline”.
This prompted Reddit traders to push Game Stop’s share price through the roof, declaring: “We want to see the loss porn”.
Shares in Game Stop surged 136 per cent in after-hours trading.
David Madden at CMC Markets said Pearson’s surging share price could be a sign of a “major short squeeze”.
“It might be the case that funds are flowing into Pearson to shake out some of the short sellers,” he added.