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RJ Scaringe, CEO of Rivian.
Alisha Jucevic/Bloomberg
There has been no halt in shares of electric vehicle start-ups
Rivian Automotive
lately. Shares finished higher again on Monday, leaving investors wondering what caused the surge and where the stock may go.
Rivian (ticker: RIVN) stock ended 3.3% higher at $25.47. THE
S&P500
closed up 0.2% and the
Nasdaq Compound
was up 0.2%. Shares of Rivian have risen for nine consecutive trading sessions, rising nearly 90% during that time. It is a breathtaking gesture.
The current sequence rivals the series of
You’re here
stock (TSLA), which rose for 13 consecutive days from the end of May. Stocks added 41% during this period.
All it seems to have taken were strong production results and very high short interest, indicating that a substantial amount of money was betting the stock would fall. Selling stocks short means that a bearish investor borrows stocks and sells them immediately. The investor hopes to later buy the cheaper shares on the market and return them to the lender.
Short-term interest for Rivian is around 12% – that percentage of shares available for sale has been allocated to bearish bets – near a record high. The average short yield for an S&P 500 stock is less than 2%, according to data from Bloomberg.
A high short interest rate can generate a short squeeze, which occurs when the stock price rises. The bearish investor who has borrowed shares may be called upon by the lender to immediately replace a portion of the borrowed shares. A critical mass of bearish investors forced to buy the stock to replace some borrowed stock would send the stock price even higher, forcing even more investors to hedge their bearish bets.
“Rivian is one of the most understandable stocks in the United States,” said Ihor Dusaniwsky, managing director of short-selling data provider S3 Partners. He bases his conclusion on a mix of factors, including how much short sellers have lost recently.
Dusaniwsky doesn’t look at Rivian’s production, but that also helps reduce stock. Earlier this month, Rivian said it produced 13,992 electric vehicles in the second quarter, beating Wall Street’s estimate of around 11,000. Additionally, if Rivian can post similar numbers in the third and fourth quarters, the company will exceed its own forecast of 50,000 units for 2023. (Rivian produced 9,395 units in the first quarter.)
That’s the reason for the rally, but how far could Rivian stock go?
“There’s no denying the extreme positive momentum, but it’s produced a very tight short-term condition now,” said CappThesis founder and technical analyst Frank Cappelleri. Barrons.
He calls the stock overbought. This means stocks have risen a lot, fast, and it’s a signal to traders that a stock may be running out of steam soon. He sees some resistance at $28,” which is also the site of [shares] December 2022 blackout zone.
The shares started falling in December and hit $11.68 on April 26.
The short-term rise to $28 isn’t all that attractive for Cappelleri, but it doesn’t make fundamental call for the business. It reads stock charts to get an idea of where traders may decide to buy or sell. In the long run, Rivian’s production and earnings will determine where the stock goes.
It is always difficult for investors to predict a change in sentiment. It is easy to identify yourself by looking in the rearview mirror. And investors are clearly feeling better about Rivian stocks these days.
“Rivian has turned the corner and production is now ramping up with the bears going into hibernation mode,” Wedbush analyst Dan Ives said in an email. “The stock is cheap for a disruptive tech player and now investors [are] stack. He has a buy rating on Rivian shares with a price target of $30.
Of course, not all recent buying can be explained by short hedging alone. Ives also sees more optimism from investors.
Write to Al Root at allen.root@dowjones.com