Rocket companies (New York Stock Exchange: RKT) It plunged 33% on Wednesday after analysts warned that stocks had gone too far, too fast.
Rocket’s stock price rose more than 70% on Tuesday in what appeared to be another short contraction driven by Reddit. Last night, however, RBC Capital analyst Daniel Perlin downgraded his rating on Rocket’s outperforming shares and reiterated his $ 30 price forecast. That was 28% below where the shares closed. from Rocket yesterday.
Perlin argued that the potential risk-reward for investors was “now more balanced, if not skewed to the downside” following the stock’s rapid rise.
Analysts in JPMorgan it went even further. “In light of the sharp rise in share prices, we believe fundamental investors should turn a profit,” JPMorgan strategist Richard Shane said Wednesday morning.
Many traders apparently took the comments from these analysts as a reason to sell their shares today.
Many individual investors participate in coordinated buying campaigns on Reddit and other social media platforms. This is a dangerous game, one that often ends in disaster.
Sure, these collaborative buying frenzy can help drive a stock’s price drastically, for a while, as we’ve seen with GameStop and now Rocket Companies. But many of these traders will exaggerate a stock to increase its price, then give it to unsuspecting investors when they finally move on to their next target.
Worst part? Shareholders who buy later on these rigged rallies and don’t sell on time can suffer devastating losses.
This article represents the opinion of the author, who may disagree with the “official” recommendation position for a premium Motley Fool consulting service. We are variegated! Questioning an investment thesis, even one of our own, helps all of us think critically about investing and make decisions that help us be smarter, happier, and wealthier.