Passionate day traders hanging out on their Reddit forums have found some new targets – Clover Health and Wendy’s – that are propelling stocks up into double digits on Tuesday.
Shares of Clover Health, a Medicare insurance start-up that went public on Chamath Palihapitiya’s SPAC, rose 46% on Tuesday after rising 32% in the previous session. Wendy’s stock climbed more than 15% as there was no obvious news about the fast food company.
Conversation about the duo grew on Reddit’s WallStreetBets forum, which now has more than 10 million subscribers. The infamous chat room was everywhere at AMC Entertainment for the past week as traders amassed cinema chain stocks and purchase options, pushing stocks more than 110% in June.
A short squeeze could be at play for Clover Health, which sells 32.7% of its float stocks short according to data from S3 Partners. That compares to about an 18% short stake in AMC. When a heavily short stock suddenly bounces high, short sellers are forced to buy back stocks and exit their short positions to reduce losses.
Reddit retailers are encouraging each other to take advantage of the huge short interest in Clover and crowd out short sellers.
“This looks like the perfect setup for a combined short and gamma squeeze. I don’t see any reason CLOV couldn’t hit the same price point as AMC last week (> $ 70). Reddit Post said Tuesday.
Earlier this year, Clover shares fell after short seller Hindenburg released a damning report calling the company a “broken deal”. Clover announced in February that it had received an investigative notice from the Securities and Exchange Commission and intended to work together.
Meanwhile, Wendy’s is also loved by Reddit merchants. The restaurant chain reported better-than-expected earnings in May and raised its forecast for the year.
The SEC said Monday that it is closely monitoring recent wild trade in certain stocks to determine if there has been any “market disruption, manipulative trading, or other misconduct.”
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