Rocket Companies stocks rose as much as 41% on Tuesday, which was surprising as there was no new news. The online mortgage lender currently has big short bets from hedge funds and appears to have drawn bullish interest from day traders on Reddit's infamous WallStreetBets.
Nearly 40% of available stocks are being sold short, and according to FactSet, it's high on US companies 'list for the size of hedge funds' short bets. That makes it a classic target for meme-obsessed investors, who this year stormed into stocks and call options of companies with strong short-selling rates to drive out short sellers. At the time, the size of retail interest in Rocket was unclear.
Tuesday's jump set Rocket on its way to its best day since going public in August 2020.
Rocket was featured in a number of popular posts on the WallStreetBet chat room on Tuesday. One says, "I like RKT. $ 1.7 million all in, let's go YOLO," and it quickly got over 1,700 comments.
Tuesday's jump into Rocket Companies' stocks didn't surprise trader Jon Najarian. Najarian, a panelist on CNBC's "Mid-Term Review" known for spotting unusual activity in the options market, said Tuesday that his interest in Rocket Companies had been piqued the day before.
"Our beta-tested social media content resumed some really bullish comments on the Reddit board WallStreetBets yesterday. These men and women are back and they are deeply connected to this," said Najarian. Co-founder of Market Rebellion, who holds call positions in Rocket Companies and positions in GameStop.
Najarian cited an increase in rocket options trading volume after increasing mentions on Reddit.
However, it remains to be seen if there is some sort of social upturn that could keep Rocket stocks dynamic. Meme-driven chatter on Rocket was nowhere near as intense as on GameStop, according to AI company Accrete.
"It's 38% short … when people see that, they think you can break the salespeople," CNBC's Jim Cramer said on Squawk on the Street, adding that he's the management and the business Really like Rocket Companies business fundamentals.
"I was a huge fan of [CEO] Jay Farner and [Chairman] Dan Gilbert. And I honestly don't understand why the stock didn't respond to what was very good when they basically set out a story that was just saying : "We can show that when interest rates rise, it has not harmed our business. If interest rates go down, it won't hurt our business. "
Rocket's surge could be a sign that the retail craze seen in GameStop earlier this year is still a factor. A month ago, an army of retail investors on Reddit managed to grow its brick and mortar video game retailer 1,500% in two weeks, causing great pain to short hedge funds. The broader market also had some frenzy effects as many large investors took the risk across the board.
If a stock with high short sales rallies, it could force short sellers to cover their declining positions to limit their losses. The short cover tends to drive the stock's rally further.
Rocket reported stronger-than-expected fourth-quarter earnings on Thursday, which impressed some Wall Street analysts. Wells Fargo raised its target price slightly and raised its earnings estimate on Rocket after its big hit.
"We were impressed with the fourth quarter results, particularly the resilience of their direct retail GOS margins," said Donald Fandetti, Wells analyst, in a note Monday. "RKT appears to be well positioned to gain market share when the environment is more affected by higher rates."
– CNBC's Kevin Stankiewicz contributed to the coverage.
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