The WallStreetBets forum on the Reddit Inc. website on a laptop computer and the logo on a smartphone arranged in Hastings-On-Hudson, New York, USA, on Friday, January 29, 2021.
Tiffany Hagler-Geard | Bloomberg | Getty Images
Shares of Rocket Companies rose more than 20% on Tuesday in a surprise move with no apparent new news. The online mortgage lender has currently placed large short bets against him by hedge funds and appears to have garnered some bullish interest from day traders on Reddit’s infamous WallStreetBets.
Nearly 40% of the available stock is sold short, and it is near the top of the list of US companies in terms of the size of the short bet by hedge funds, according to FactSet. That makes it a classic target of meme-obsessed investors, who are storming together this year on stocks and call options from companies with high short positions to squeeze out short sellers. It was unclear at this point how significant the retail interest in Rocket was.
A number of popular posts on the WallStreetBet chat room featured Rocket on Tuesday. One says “I like RKT. $ 1.7 million all in, let’s do YOLO,” and it quickly drew more than 1,700 comments.
“It’s 38% short … When people see that, they think you can arrest the salespeople,” CNBC’s Jim Cramer said in “Squawk on the Street,” adding that he is Rocket’s management and corporate fundamentals. Companies really like.
“I’ve been a big fan of it [CEO] Jay Farner and [Chairman] Dan Gilbert … and honestly don’t understand why the stock didn’t respond to what was a very good thing, where they basically made up a story that just said, ‘We can show how when prices go up, it hasn’t hurt our company . If rates fall, it will not adversely affect our business. ”
Rocket’s surge could be a sign that the retail trade fad earlier this year in GameStop is still a factor. A month ago, an army of retail investors on Reddit managed to push the brick-and-mortar video game retailer up 1,500% in two weeks, causing immense pain for hedge fund short selling. The broader market also experienced some spillovers from the frenzy as many big investors took risks across the board.
When a stock with a high short interest rate jumps sharply higher, it could force short sellers to hedge their bearish positions to limit their losses. The short coverage tends to further fuel the stock’s rally.
Rocket reported stronger-than-expected fourth-quarter gains on Thursday, impressing some Wall Street analysts. Wells Fargo slightly raised his target price and raised his estimate for Rocket after his big hit.
“We were impressed with the fourth quarter earnings, in particular the resilience of their direct CIS margins to consumers,” Donald Fandetti, an analyst at Wells, said in a note on Monday. “RKT appears to be well positioned to gain market share if the environment becomes more disrupted by higher rates.”
– CNBC’s Kevin Stankiewicz contributed to the reporting.
Subscribe to CNBC PRO for exclusive insights and analysis, and live programming of working days from around the world.