There has been no stopping the shares of electric-vehicle start-up
Rivian Automotive
lately. Shares finished higher again on Monday, leaving investors wondering what caused the surge, and where can the stock go.
Rivian stock (ticker: RIVN) finished up 3.3% at $25.47. The
S&P 500
closed 0.2% higher and the
Nasdaq Composite
was up 0.2%. Rivian shares were up for nine consecutive trading sessions, rising almost 90% over that span. It’s a breathtaking move.
The current streak rivals the run of
Tesla
stock (TSLA), which rose for 13 consecutive days starting in late May. Shares added 41% over that span.
All it seems to have taken is solid production results and very high short interest, which indicated that a substantial amount of money was betting the stock would fall. Selling stock short means a bearish investor borrows shares and sells them immediately. The investor hopes to, later on, buy the shares cheaper on the market and return them to the lender.
Short interest in Rivian is about 12%—that percentage of shares available for trade were allocated to bearish bets—close to a record high. The average short interest for an S&P 500 stock is less than 2%, according to Bloomberg data.
High short interest can generate a short squeeze, which occurs when the share price rises. The bearish investor who borrowed shares may be called upon by the lender to immediately replace some of the shares borrowed. A critical mass of bearish investors forced to buy the stock to replace some borrowed shares would send the stock price even higher, causing even more investors to cover their bearish bets.
“Rivian is one of the most squeezable stocks in the U.S.,” said Ihor Dusaniwsky, managing director at short-selling data provider S3 Partners. He is basing his conclusion on a mix of factors, including how much short sellers have lost recently.
Dusaniwsky isn’t looking at Rivian’s production, but that is helping squeeze the stock, too. Earlier this month, Rivian said it produced 13,992 EVs in the second quarter, topping Wall Street’s estimate of about 11,000. What’s more, if Rivian can put up similar numbers in the third and fourth quarters, the company will beat its own guidance for 50,000 units for 2023. (Rivian produced 9,395 units in the first quarter.)
That’s the why of the rally, but how far could Rivian stock go?
“One can’t deny the extreme positive momentum, but it has produced a very stretched short-term condition now,” says CappThesis founder and technical analyst Frank Cappelleri tells Barron’s.
He calls the stock overbought. That means shares have gone up a lot, quickly, and is a signal to traders that a stock could run out of steam soon. He sees some resistance at $28, “which also is the site of [shares] December 2022 breakdown zone.”
Shares started dropping in December and hit $11.68 on April 26.
Short-term upside of $28 isn’t that attractive to Cappelleri but he isn’t making a fundamental call on the company. He’s reading stock charts to get a sense 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’s always tough for investors to predict a change in sentiment. It’s easy to identify looking in the rearview mirror. And investors are clearly feeling better about Rivian stock these days.
“Rivian has turned the corner and production now ramping with the bears going into hibernation mode,” says Wedbush analyst Dan Ives in an email. “The stock is cheap for a disruptive tech player and now investors [are] piling in.” He has a Buy rating on Rivian stock with a $30 price target.
To b sure, all the recent buying can’t be accounted for by just short position covering. Ives sees more optimism from investors too.
Write to Al Root at [email protected]
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