A Reddit logo displayed on a smartphone with stock quotes in the background.
Omar Marques | LightRocket | Getty Images
Shares of Rocket Companies fell more than 11% in premarket trading on Wednesday after a surprise rally in the previous session as Wall Street analysts raised red flags over the raging trade.
The online mortgage lender’s stock came under pressure after it rallied more than 70% on Tuesday before its bear day ever with no clear news. Rocket is one of the most short-cut hedge fund names, with nearly 40% of the stock available being sold short, which may have made it attractive to the Reddit traders.
Analysts urged caution in the face of increased speculative trading in Rocket stocks. JPMorgan said fundamental investors should take their chips off the table after the giant leap.
“In light of the surge in stock prices, we believe fundamental investors should take profits,” Richard Shane, JPMorgan’s equity strategist, said in a note. “While similar events with high turnover and high volatility have created continued speculative opportunities, we believe that in the long term, core investors will be able to build positions at lower price levels.”
JPMorgan has an underweight assessment of the company and the $ 20 price target would translate to a 50% decline from Tuesday’s close at $ 41.60.
Daniel Perman, an analyst at RBC Capital Markets, lowered stocks to Wednesday’s sector performance better than ever, citing “abnormal volatility” in the name. RBC’s target price of $ 30 per share remained unchanged, implying a decline of more than 27% for the stock.
While it’s hard to quantify how much of Tuesday’s sudden rally was driven by Reddit-obsessed day traders, Rocket has been featured in top posts on the infamous WallStreetBets this week.
On Wednesday, a Reddit user said “$ 181,840 profit in 4 hours from $ RKT. Time to give my wife that wedding she’s always wanted.” The post has more than 2500 responses.
Some say Rocket’s rise is reminiscent of the GameStop trading mania that gripped Wall Street earlier this year. In January, a group of retail investors on Reddit coordinated a historic short squeeze in the video game retailer, which caused massive losses for some hedge funds.
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