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

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

Nearly 40% of its available shares are sold short and it is near the top of the incline 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 take been storming together into shares and call options of heavily shorted companies in order to squeeze out suddenly sellers. It was unclear of the size of the retail interest in Rocket at this time.

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

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

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

Fandetti has an equal weight rating on the stock.

The jump in Shoot up Companies shares Tuesday did not catch trader Jon Najarian by surprise. Najarian, a panelist on CNBC’s “Halftime Report” grasped 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 group media stuff right now picked up on yesterday some really just hugely bullish comments over on the Reddit game table WallStreetBets again. These men and women are back and they’re into this one in a big way,” said Najarian, co-founder of Market Contumacy who has call positions in Rocket Companies and put positions in GameStop. 

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

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

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

“I clothed 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 yard goods [quarter] where they basically laid out a story that just said, ‘We can show how when rates go up, it has not torment our business. When rates go down, it’s not hurt our business.'”

The surge in Rocket could be a sign that the retail profession mania seen in GameStop earlier this year is still a factor. A month ago, an army of retail investors on Reddit managed to onward force the brick-and-mortar video game retailer up 1,500% in about two weeks, inflicting huge pain on short selling hedge grants. The broader market also experienced some spillover impact from the frenzy as many big investors took down jeopardize across the board.

When a stock with high short interest jumps sharply higher, it could duress short sellers to cover their bearish positions in order to limit their losses. The short covering tends to provoke the stock’s rally further.

Rocket reported stronger-than-expected fourth-quarter earnings on Thursday, which impressed some Immure Street analysts. Wells Fargo raised its price target slightly and moved up its earnings estimate for Rocket after its big fustigate.

— CNBC’s Kevin Stankiewicz contributed reporting.

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