Morning Market Update
Good morning. Futures are down this morning…though they were up when I was hitting my snooze button an hour ago. This is the nature of markets these days. Rocket Companies ($RKT) was truly a rocket ship yesterday as the #WSB gang targeted this highly shorted company (40% of the float is short), which requires more than 4 days to cover (i.e., the “short interest ratio”). So, as the stock ran 100% over the past 3 days,Rocket owns Quicken Loans, and mortgage rates have been rising…and that’s the thesis for all the short sellers. Now, I get the GameStop ($GME) thesis, which was that the gamers are now getting their games online rather than going into deserted malls to buy their little DVDs. But…why these brainiacs didn’t consider the fact that a brand name is worth something, and that there is potential to just start trading on their name and converting to online sales is beyond me. This is the ethos of dedicated short sellers — they believe that they’re smarter than the market. Maybe so — but this isn’t an IQ test. It’s a “crowd observation” test. Everyone has heard of GameStop and seen their stores in malls/ Ours is next to Target ($TGT).
So, now that mortgage rates are rising, it’s time to short mortgage companies. There’s one little problem with that. Just a teeny weenie problem. With the economy opening up again, there might be a few folks that have been wanting to buy a home, but have been waiting for a better economy. There might be a few homebuilders who are likely to build a few more homes because their subs don’t have to climb scaffolding with masks on. There might be a few folks who have been unable to refinance their home because their income had taken a hit over the past year, but that prospects for better days are right around the corner. Also, this company has been posting some monster numbers in terms of revenues, margins and earnings. So I just don’t get the short thesis other than what a first year intern at a hedge fund would have come up with. Sometimes the hardest lessons to learn are also the most expensive.
So, I had been looking at $RKT as a potential long. We traded this stock in January as a covered call — long stock, hedged by short calls. I was just waiting for it to break out of a squeeze in the $21 buck area. But if you look at the chart and understand the type of trades I like, you’d see that this just wasn’t a trade that I’d have made. It never really set up — it just blasted off. So I just missed it — though I get the sense that several traders in the forum caught this move. Great job!
Just a reminder — yesterday I was stopped out of the Restoration Hardware ($RH) trade, but I had set the stop too tight — I was watching for a breakout. But instead, the stock fell back into the trading range and barely clipped me. If you are still long (or if you bought), I think you’re on the right side of the trade. I think the stock is fine and I may even open it again. I’ve got a couple of other stocks I’m considering, so watch for alerts.
Have a good day.
–Dan
Market Update