Shares of electric-vehicle start-up Rivian Automotive have been on a remarkable upward trend recently, leaving investors intrigued by the sudden surge and eager to know what lies ahead for the stock.
Rivian stock (ticker: RIVN) closed at $25.47, marking a 3.3% increase. In comparison, the S&P 500 rose by 0.2% and the Nasdaq Composite saw a similar gain of 0.2%. Rivian shares have experienced a nine-day winning streak, soaring nearly 90% during this period. The magnitude of this leap is truly astonishing.
This impressive run of gains is akin to the remarkable performance seen in Tesla stock (TSLA), which climbed for 13 consecutive days in late May, resulting in a 41% increase.
The surge can be attributed to solid production results and a remarkably high short interest. The elevated short interest suggests that a significant amount of money has been invested in betting against the stock. Shorting a stock involves borrowing shares from a bearish investor and selling them immediately. The investor hopes to buy back the shares at a lower price later on and return them to the lender.
Rivian currently has a short interest of approximately 12%, close to an all-time high. In contrast, the average short interest for S&P 500 stocks is less than 2%, according to Bloomberg data.
Such high short interest has the potential to trigger a short squeeze, where the price of the shares rises sharply. In such scenarios, bearish investors who borrowed shares may be required by lenders to promptly replace some of the borrowed shares. If enough bearish investors are forced to buy back the stock in order to replace their borrowed shares, it would fuel further increases in the stock price, prompting even more investors to cover their bearish positions.
According to Ihor Dusaniwsky, the managing director at short-selling data provider S3 Partners, “Rivian is one of the most squeezable stocks in the U.S.” He arrived at this conclusion by considering various factors, including the recent losses incurred by short sellers.
Rivian, the electric vehicle (EV) manufacturer, has recently impressed investors with its production numbers. In the second quarter, Rivian produced 13,992 EVs, surpassing Wall Street’s estimate of approximately 11,000 units. This achievement has fueled optimism among traders and could potentially lead to the company exceeding its own guidance of 50,000 units for 2023. Despite these positive developments, some market analysts caution that the stock’s current momentum may be overextended.
Frank Cappelleri, founder and technical analyst at CappThesis, acknowledges the stock’s impressive rally but highlights its stretched short-term condition. He considers the shares to be overbought, indicating that they have risen quickly and may soon lose steam. Cappelleri identifies a possible resistance level at $28, which coincides with the site of a breakdown in December 2022.
Although Cappelleri does not find the short-term upside potential of $28 particularly attractive, he emphasizes that his assessment is solely based on stock charts rather than fundamental analysis of the company. The trajectory of Rivian’s stock will ultimately depend on its production capabilities and earnings in the long run.
Investors often struggle to accurately predict changes in sentiment. While identifying such shifts retrospectively is relatively easy, looking ahead poses a challenge. Nevertheless, investor confidence in Rivian stock has markedly improved in recent times.
Wedbush analyst Dan Ives believes that Rivian has now turned the corner with its production ramping up, causing bearish sentiment to diminish. Ives views Rivian as an undervalued player in the disruptive tech industry and notes the growing interest from investors. He maintains a Buy rating on Rivian stock, with a price target of $30.
It’s worth noting that the recent surge in buying activity cannot be solely attributed to short-position covering. Ives observes a genuine sense of optimism among investors regarding Rivian’s future prospects.
In conclusion, Rivian’s impressive production numbers have instilled confidence in traders and investors alike. While technical analysts highlight the stock’s overbought status and potential resistance at $28, analysts such as Dan Ives remain optimistic about Rivian’s long-term growth potential.