Shares of Rocket Companies, a large short target of hedge funds, jump more than 70%

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  • Shares of Rocket Companies rallied more than 70% in a surprising move on no apparent news.
  • The online mortgage provider currently has large short bets placed against it by hedge funds.
  • The company appears to have garnered some bullish interest from day traders on Reddit’s infamous WallStreetBets chat room.

Shares of Rocket Companies rallied more than 70% on Tuesday in a surprising move on no apparent news. The online mortgage provider currently has large short bets placed against it by hedge funds and appears to have garnered some bullish interest from day traders on Reddit’s infamous WallStreetBets chat room.

Nearly 40% of its available shares are sold short and it is near the top of the list of U.S. companies in terms of size of short bet by hedge funds, according to FactSet. That makes it a classic target for meme-obsessed investors, who this year have been storming together into shares and call options of heavily shorted companies in order to squeeze out short sellers. It was unclear of the size of the retail interest in Rocket at this time.

Rocket closed Tuesday 71.19% higher at $41.60 apiece, posting its best day ever since its IPO in August 2020. Trading was halted briefly due to volatility multiple times throughout the day.

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A number of popular posts on WallStreetBet chatroom featured Rocket on Tuesday. One says “I like RKT. $1.7M all-in, let’s gooo YOLO,” and it quickly drew more than 1,700 comments.

“We believe the trading reflects retail/Reddit activity like we’ve seen in other stocks recently,” wrote Wells Fargo analyst Donald Fandetti on Tuesday. “We noted our incrementally more positive view, but not good enough to support this move which is the third trading day after earnings. We expect the shares to normalize and again trade on fundamentals, however the timing is uncertain.”

Fandetti has an equal weight rating on the stock.

The jump in Rocket Companies shares Tuesday did not catch trader Jon Najarian by surprise. Najarian, a panelist on CNBC’s “Halftime Report” known for spotting unusual activity in the options market, said on Tuesday’s show that his interest in Rocket Companies was piqued a day earlier. 

“Our beta-tested social media stuff right now picked up on yesterday some really just hugely bullish comments over on the Reddit board WallStreetBets again. These men and women are back and they’re into this one in a big way,” said Najarian, co-founder of Market Rebellion who has call positions in Rocket Companies and put positions in GameStop. 

Najarian cited a jump in Rocket options trading volume following increased mentions on Reddit.

Still, it remains to be seen whether there is the kind of social groundswell that could keep momentum going in Rocket shares. Meme-driven chatter on Rocket was not nearly as intense as seen on GameStop, according to AI firm Accrete.

“It’s 38% short … When people see that, they think you can bust the sellers,” CNBC’s Jim Cramer said on “Squawk on the Street,” while adding he actually likes Rocket Companies’ management and business fundamentals. 

“I have been a huge fan of [CEO] Jay Farner and [Chairman] Dan Gilbert .. and frankly don’t understand why the stock did not react to what was a very good where they basically laid out a story that just said, ‘We can show how when rates go up, it has not hurt our business. When rates go down, it’s not hurt our business.'”

The surge in Rocket could be a sign that the retail trading mania seen in GameStop earlier this year 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, inflicting huge pain for short selling hedge funds. The broader market also experienced some spill-over impact from the frenzy as many big investors took down risk across the board.

When a stock with high short interest jumps sharply higher, it could force short sellers to cover their bearish positions in order to limit their losses. The short covering tends to fuel 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 price target slightly and moved up its earnings estimate for Rocket following its big beat.

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