Shares in Rocket Companies drop after a 70% irrational pop in the severely short-lived name

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

Omar Marques | LightRocket | Getty Images

Shares of Rocket company fell more than 11% in pre-market trading on Wednesday after a surprising rally during the previous session, when Wall Street analysts raised red flags on frenzy trading.

The online mortgage lender’s stock came under pressure after rising more than 70% on Tuesday for its bear day ever without any obvious news. Rocket is one of the hedge funds’ shortest names, with almost 40% of its available shares sold short, which may have made it attractive to the Reddit trading community.

Analysts began to urge caution in the increased speculative trading in Rocket shares. JPMorgan said that basic investors should take their chips off the table after the big jump.

“Given the sharp rise in stock prices, we believe that core investors should make a profit,” said Richard Shane, JPMorgan’s equities strategist, in a note. “While similar high speeds, high volatility events have created sustained speculative opportunities, we believe at the core, long-term investors will be able to build positions at lower price levels.”

JPMorgan has an underweight rating on the company and the price target of $ 20 would mean a 50% drop from the end of Tuesday of $ 41.60.

RBC Capital Markets analyst Daniel Perman downgraded equities to sectors from better results on Wednesday, citing “abnormal volatility” in the name. RBC’s price target of $ 30 per share was unchanged, which meant a decrease of more than 27% for the share.

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

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

Some say that the rise of Rocket is reminiscent of the retail craze seen in GameStop that gripped Wall Street earlier this year. In January, a band of retail investors on Reddit coordinated a historically short press in the video game retailer, creating huge losses for some hedge funds.

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