In a dramatic turn of events, GameStop (GME) stock suffered a significant blow on Wednesday, plummeting over 18% as the once-booming meme stock rally showed signs of waning. This decline comes on the heels of a remarkable two-day short squeeze that saw the video game retailer's shares surge more than 180% amid multiple halts for volatility.

The downward trend was not limited to GameStop alone, as AMC (AMC) also saw a sharp decline of 20% on Wednesday, following a remarkable 95% climb over the previous two days for the theater chain operator. Other heavily shorted stocks that experienced drops included SunPower (SPWR), Beyond Meat (BYND), and the Children's Place (PLCE).

This recent turn of events has invoked memories of the historic meme stock rally of 2021, when GameStop's resurgence was ignited by the bullish predictions of Keith Gill, also known as "Roaring Kitty." Nicholas Colas, co-founder at DataTrek Research, commented that the current trading action "feels like an echo of early 2021 when this account helped fuel a vicious short squeeze in GameStop."

Colas further noted that while the current market movement bears some resemblance to 2021, it falls short in terms of magnitude. In January 2021, GameStop stock had skyrocketed an astonishing 1,500%, only to relinquish most of those gains later.

Despite the severe losses short sellers experienced during the original meme stock rally, it seems that they have not been deterred in their bets against these companies. According to data from S3 Partners, short interest in GameStop remained high, with nearly 24% of the float still being shorted. On Tuesday alone, GameStop shorts incurred losses of $900 million, adding to the $1.36 billion lost on Monday.

Ihor Dusaniwsky, managing director of S3 Partners, explained, "We are seeing continued squeeze-related short covering due to the rebirth of the meme trade," implying that the short squeezes contributing to the recent volatility are far from over.

However, Wall Street strategists are quick to caution that the present fervor is unlikely to reach the extreme levels witnessed three years ago. They believe the chances of a repeat of the 2021 meme frenzy are relatively "low," distinguishing the current situation from what was deemed a "transformational moment" back then, drawing millions of individuals back into the stock market.

While the dynamics may have shifted, there are those who still see the ongoing short squeezes as a battle between the small retail investors and the larger institutions. Matt Kohrs, a prominent YouTuber who has held positions in both GameStop and AMC, emphasized that the fundamental struggle of "the little guy versus the big guy" observed during the 2021 short squeezes still holds true today.

As the meme stock rally continues to unfold, market participants eagerly await to see how the chaotic and unpredictable movement of these stocks will evolve in the days to come, keeping a close eye on the inevitable clash between the bullish retail traders and the skeptical short sellers.