Are Reddit traders targeting California-based electric vehicle (EV) manufacturer Mullen Automotive (NASDAQ:MULN) for an imminent short squeeze? Certain borrowing-cost data indicates the bears might have to hibernate in the near future. This could help to explain the notable price action in MULN stock today.
There’s no denying it: Mullen Automotive’s long-term investors have had a rough year. They’ve witnessed shares fall from nearly $6 to around 30 cents.
Sometimes, however, Reddit users have been known to set their sights on underdog stocks like MULN. Is it possible that the short-squeeze crowd is circling their wagons around Mullen right now?
It’s hard to know for certain, but there’s publicly available data that traders can look at. In particular, Fintel published the short-sale borrow fee rate for Mullen shares this morning. Astoundingly, that rate jumped from 9.65% on Dec. 27, to 156.76% yesterday, and then to 313.76% today.
As Eddie Pan explains, “Borrow fees refer to a type of secured loan which bearish traders pay to initiate their shorting activities.” Just to provide some perspective, Financetrain.com states that the “typical fee for a stock loan is 0.30% per annum.”
What’s Happening with MULN Stock?
In other words, the borrowing fee rate for MULN stock is skyrocketing, and is far above what’s considered normal. This leads to an important question: Does a borrowing-fee spike in a heavily shorted stock necessarily lead to a huge short-squeeze?
There are no guarantees here, but long-leaning Mullen Automotive investors seem to be in the driver’s seat now. That’s because shares rallied 10% this morning, even after starting the trading session down 3%.
That’s quite a rebound, so it’s possible that a short squeeze is underway. After all, a heavily shorted stock is like a coiled spring, ready to bounce at any given moment.
Don’t get too excited, though, as Fintel also reports that MULN stock’s short interest as a percentage of float is 10.83%. This is moderately elevated, but not off the charts.
Still, it’s not every day that traders witness a short-sale borrow fee rate rocket higher like this. Perhaps, Reddit’s market influencers might be preparing a big move and Mullen Automotive’s loyal shareholders could enjoy supersized gains in early 2023.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
