Rocket Mortgage (NYSE:RKT) is doing exactly what it should have done. Let me back into that statement by saying that it rallied to levels it should have. But the time it took to get there was a freakish aberration. We cannot ignore whatever happened on March 2 and call this price action normal. Yes, I enjoy rallies too, but I would rather it takes its time to get there. RKT stock is one to hold for the long term.
Meanwhile there was no shame in scalping profits over $40 per share.
My long-term thesis in my prior write up was that Rocket has good future prospects. Furthermore, it had support on charts to help it out of its swoons. This is now fact because RKT stock has come under fire a few times since then. Each time it bounced hard and the last one was, in fact, too hard.
Now the bulls need to defend the breakout area near $23 per share. If they do that then they can rebuild the rally only slower this time.
This is a fickle market so investors need to be opportunistic. When I get fast, big moves in my favor, I book profits. This is true even in long-term investments. We cannot count on anything making sense anymore. The shenanigans on Wall Street are blatant.
Look what is happening still even yesterday in GameStop (NYSE:GME). The regulators are letting this go on too long, so we have to be cautious. There is harm from it because massive losses occur, and to cover them they sell great stocks. Case in point is surprise corrections in Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA) and Nvidia (NASDAQ:NVDA) to name three. They fell between 4% and 6% in mere hours Monday. GME stock was up 40% that day, and I don’t believe in coincidences.
There Are Extrinsic Risks
No ticker is safe. High profile very violent stocks are moving in very unusual ways. Sometimes it helps a few investors but overall it’s detrimental to the investment community’s stability. Wall Street is becoming more and more like a poker room than a place for investment. Recently, RKT stock doubled in minutes, went up 118% in three days. That’s not right and within hours it gave the bulk of it back.
In spite of this lunacy, I remain positive on the outlook for the company. I still think it is one to own for the mid and long ranges. Those who were long it going into March 2 should have booked the profits on the crazy spike. If not then they already committed to owning it for an extremely long period of time. Now they can buy it back with profits in hand.
To make matters more complicated, they did a substantial special dividend. The size of the payout on such a low dollar stock made it attractive to a lot of investors. This is as a bullish sign because it shows the company is confident enough to give away that much money. They see good things for their business and out in time.
The Mortgage Business Is Healthy
The mortgage industry is extremely healthy thanks to the interference from the Federal Reserve. Central banks are all in with their very accommodative policies. Therefore, interest rates are not going far. Yes, I understand that the current meme from the experts is that we have runaway rates. That cannot continue for too long. Mortgage rates will continue to face headwinds for a long while. People still need to buy and refinance homes for many months to come.
Rocket is not an up-and-coming rookie team. They’ve been doing this for a long time. They are young on Wall Street but they are veterans within their industry. Those who want to get long RKT stock can simply buy it for the long term. Even so, I’d like to leave as much room for error as possible. I prefer to sell puts into fearful days. A blend of both strategies will probably work best for this kind of stock.
RKT Stock Is on Solid Ground
The fundamentals are good and the outlook is solid. Demand is sustaining and Rocket is already a successful provider. Therefore, it would take a long term market-wide crash to permanently ruin the upside potential. Such macroeconomic conditions changes are not imminent. Until then, serious dips in RKT stock will be buying opportunities.
The pandemic of 2020 made it a fact that we will be dealing with everything online eventually. Doing mortgages has been an arduous process too long. Bringing it online streamlines and expedites things. There will be hold outs, but most consumers, especially young ones, have embraced the use of technology. I am confident that RKT stock is a good long near $23 per share.
Having said that, investors should infuse a healthy level of doubt. It’s strange to have the government dump $2 trillion of aid when the stock markets are near all-time highs. There’s a disconnect between what’s going on Wall Street versus Main Street. Just in case there is a new shoe to drop, investors should take partial positions to start. There will be time to add to them over time.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
