Rocket Firms inventory is dropping after a 70% irrational pop within the closely shorted identify

A Reddit logo displayed on a smartphone with stock market prices in the background.

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Rocket Companies stocks fell more than 20% on Wednesday after a surprise rally in the previous session as Wall Street analysts hoisted red flags for frenzied trading.

The online mortgage company’s stock came under pressure after rising more than 70% for its bear day on Tuesday, with no apparent news. Rocket is one of the most shortened names of hedge funds. Almost 40% of the available stocks have been sold short, which may have made it attractive to the Reddit trading group.

Analysts began to be wary of increased speculative trading in Rocket stocks. JPMorgan said fundamental investors should take their chips off the table after the massive jump.

“With stock prices soaring, we believe fundamental investors should take profits,” JPMorgan’s equity strategist Richard Shane said in a note. “While similar high-speed, high-volatility events have created persistent speculative opportunity, we believe core long-term investors will be able to rebuild positions at lower price levels.”

JPMorgan is underweight on the company and its target price of $ 20 would decrease 50% from Tuesday’s close of $ 41.60.

RBC Capital Markets analyst Daniel Perman downgraded the stock from outperformance on Wednesday to sector performance, citing “abnormal volatility” in the name. RBC’s target price of $ 30 per share was unchanged, which means the stock is down more than 27%.

While it’s hard to quantify how much of Tuesday’s sudden rally was driven by Reddit-obsessed day traders, Rocket was featured in top posts on the infamous WallStreetBets this week.

On Wednesday, a Reddit user said, “$ 181,840 in profit in 4 hours from RKT. Time to give my wife the wedding she always wanted.” The post has more than 2,500 answers.

Some say Rocket’s surge is reminiscent of the GameStop retail craze that hit Wall Street earlier this year. In January, a group of retail investors on Reddit coordinated a historic short squeeze at the video game retailer that caused huge losses for some hedge funds.

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