Missile companies (NYSE: RKT) fell 33% on Wednesday after analysts warned that stocks had gone too far, too fast.
Rocket’s stock price rose more than 70% on Tuesday, which turned out to be another short squeeze driven by Reddit. Yet late last night, RBC Capital analyst Daniel Perlin downgraded Rocket’s stock from a better performance in the sector and reiterated its $ 30 price forecast. That was 28% below where Rocket’s stock closed yesterday.
Pearlin argues that the potential for investor payoff risk is “already more balanced, if not distorted” following the rapid rise in stocks.
Analyzers in JPMorgan went even further. “In light of the sharp rise in stock prices, we believe that major investors should take a profit,” JPMorgan strategist Richard Shane said Wednesday morning.
Apparently, many traders accepted the comments of these analysts as a reason to sell their shares today.
Many individual investors are involved in coordinated campaigns to buy Reddit and other social media platforms. This is a dangerous game – one that often ends in disaster.
These crowdsourcing buying crazes can certainly help raise stock prices dramatically higher – for a while – as we’ve seen with GameStop and now Missile Companies. But many of these traders will advertise stocks to pump up their price – and then dump them on unsuspecting investors when they eventually move on to their next target.
The worst part? Shareholders who buy later in these manipulated rallies and do not sell on time can suffer devastating losses.
This article presents the opinion of the writer, who may disagree with the “official” position of the recommendation of Motley Fool’s first-class consulting service. We are colorful! Challenging an investment thesis – even one of our own – helps us think critically about investing and make decisions that help us become smarter, happier and richer.