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Rivian CEO RJ Scaringe.
Alisha Jucevic/Bloomberg
There has been no end to the shares of electric vehicle startups
Rivian Automotive
recently. Shares rallied again during Monday trading, leaving investors wondering what caused the surge and where the stock could go.
During afternoon trading, shares of Rivian (ticker: RIVN) rose 2.6% to $25.36. The
S&P 500
rose 0.2% and the
Nasdaq composite
rose by 0.1%. Rivian shares rose for nine consecutive trading sessions, rising nearly 90% over that period. It’s a breathtaking move.
The current streak equals the run of
Tesla
stock (TSLA), which rose for 13 consecutive days from the end of May. Stocks added 41% over that period.
All that seemed necessary were solid manufacturing results and very high short-term interest rates, indicating that a significant amount was betting on the stock falling. Short selling stocks means that a bearish investor borrows stocks and immediately sells them. The investor later hopes to buy the shares cheaper on the market and return them to the lender.
The short stake in Rivian is about 12% – that percentage of shares available for trade allocated to bearish bets – close to an all-time high. According to data from Bloomberg, the average short-term interest rate for an S&P 500 stock is less than 2%.
High short-term interest rates can cause a short squeeze, which occurs when the stock price rises. The bearish investor who has borrowed stock may be called upon by the lender to immediately replace some of the borrowed stock. A critical mass of bearish investors forced to buy the stock to replace some borrowed shares would push the stock price even higher, prompting even more investors to hedge their bearish bets.
“Rivian is one of the most squeezeable stocks in the US,” said Ihor Dusaniwsky, 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 put pressure on stock. Earlier this month, Rivian said it produced 13,992 EVs in the second quarter, surpassing Wall Street’s estimate of about 11,000. Additionally, if Rivian can post similar numbers in the third and fourth quarters, the company will surpass 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 can Rivian’s stock go?
“You can’t deny the extremely positive momentum, but it has now led to a very tense short-term condition,” said CappThesis founder and technical analyst Frank Cappelleri. from Baron.
He calls the stock overbought. That means stocks have gone up a lot quickly and is a signal to traders that a stock could soon go empty. He sees some resistance at $28,” which is also where the site is [shares] Breakdown zone December 2022.”
Shares began falling in December, reaching $11.68 on April 26.
A $28 short-term profit isn’t all that appealing to Cappelleri, but it doesn’t make a fundamental appeal to the company. He reads stock charts to get an idea of where traders might decide to buy or sell. In the long run, Rivian’s production and revenue will determine where the stock goes.
It is always difficult for investors to predict a change in sentiment. It is easy to spot if you look in the rear view mirror. And investors are clearly feeling better about Rivian stock these days.
“Rivian is around the corner and production is now in full swing and the bears are going into hibernation,” Wedbush analyst Dan Ives said in an email. “The stock is cheap for a disruptive tech player and now investors [are] pile up.” He has a buy rating on Rivian stock with a price target of $30.
Certainly, all recent purchases cannot be explained by covering short positions alone. Ives also sees more optimism among investors.
Write to Al Root at allen.root@dowjones.com
