what happened
Rocket Companies (NYSE: RKT) plunged 33% on Wednesday after analysts warned the stock was getting too far, too fast.
Approximately
Rocket’s share price rose more than 70% on Tuesday in what was another brief push fueled by Reddit. Late last night, RBC Capital analyst Daniel Perlin lowered his listing on Rocket’s share of better than performance in the sector and repeated his price forecast of $ 30. It was 28% lower than Rocket’s share closed yesterday.
Shares of Rocket Companies lost a third of their value on Wednesday. Image Source: Getty Images.
Perlin argued that the risk-to-reward potential for investors ‘is now more balanced, if not slanting to the downside’ after the stock’s rapid rise.
Analysts at JPMorgan went even further. “Given the sharp rise in stock prices, we believe fundamental investors need to make a profit,” JPMorgan strategist Richard Shane said on Wednesday morning.
Many traders apparently saw the comments of these analysts as a reason to sell their shares today.
Now what
Many individual investors participate in coordinated buying campaigns on Reddit and other social media platforms. It’s a dangerous game – one that often ends in disaster.
These purchased frenzy can certainly help to sharply increase the price of a stock for a while, as we have seen with GameStop and now Rocket Companies. But many of these traders will incite a stock to push up the price – and then throw it at unsuspecting investors when they finally go to their next target.
The worst part? Shareholders who buy later in these manipulated rallies and do not sell on time can suffer devastating losses.
This article represents the opinion of the author, who may not be in agreement with the ‘official’ recommendation position of a Motley Fool premium advisory service. We are furry! Questioning an investment thesis – even one of our own – helps us all to think critically about investments and to make decisions that help us become smarter, happier and richer.