January 29th, 2021 | 13:15 CET
Nokia, Nikola, dynaCERT: Where is the next short squeeze lurking?
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"[...] Why should a modular electrolyzer cost more than a motorcycle? [...]" Sebastian-Justus Schmidt, CEO and Founder, Enapter AG
Nokia: 50% return in a few hours
After GameStop, Reddit traders took a look at the Nokia share. The stock was considered too dull until recently. The former stock market star of the 1990s eked out an existence as a network equipment supplier. The prospect of heavy regulation of critical 5G infrastructure raised hopes that Nokia would win business, despite the cheaper competition, from China. But a few posts on Reddit were all it took for the stock to shoot up 50% within hours on Wednesday. The flood of buy orders pushed the share price up, and presumably, short-sellers, who had previously sold the stock short, also had to close positions.
Nokia is now trading back at Tuesday's level, but the incident shows how powerful private investors have become when joining forces in forums. The situation becomes even more spectacular when you consider the volumes that Reddit traders are moving together: On Wednesday, a total of 296 million Nokia shares changed hands. Within the past thirty days, this value has averaged around 37 million. This market power can put a hedge fund, which previously made large bets on falling prices, in a bind. Whether the online community will target Nokia again is unclear.
Nikola: are the Reddit traders coming back?
One stock that is also said to be heavily short by some hedge funds is Nikola. The hydrogen pioneer plans to put trucks with alternative powertrains on the road soon. After a product video in the summer raised allegations of manipulation, the value slumped significantly. It is suspected that hedge funds borrowed shares in Nikola on the market and immediately sold them. As a result, there is an obligation to return the shares at a later date. If the speculation is successful, such shares can be rebought at lower prices and hedge funds collect profits. But if private investors buy up shares in a concerted action, the short-sellers' book losses increase rapidly. They are then often forced to buy into already rising prices to cap their risk, which is theoretically unlimited for short-sellers.
In the case of Nikola, the price recently jerked upwards just a little but then calmed down again. The background could also be that many smartphone brokers have suspended trading on specific stocks in recent days, ostensibly with the argument that they want to protect customers from volatile values. However, the net is seething: The brokers made common cause with hedge funds, so the reproach. The organized Reddit community may just be gathering, moving to new providers and then trying again with Nikola.
Popular targets for Reddit traders are stocks of companies with new technology viewed critically by the financial establishment. Critical comments regarding the valuation of such shares from established players in the financial scene, such as analysts or even significant investors, are interpreted as arrogance by private investors who have only known rising prices for years. Further such attacks may take place in the coming days and weeks.
dynaCERT: Why the stock fits into the target scheme
dynaCERT could also fit into the target scheme of Robinhood traders. The Canadian supplier of hydrogen-based electrolysis systems, suitable for the environmentally friendly conversion of diesel engines, announced a strategic partnership with Harold Martin last week. The goal: to make dynaCERT's products available to a broader market. Despite the good news, dynaCERT's stock continues to find it challenging to break into new price regions. Presumably, short-sellers position themselves again and again and depress the price of the traditionally volatile stock.
This is also supported by the fact that positive news, such as from the analyst recommendation by brokerage house Haywood in mid-January, repeatedly lead to rapid and steep price increases. dynaCERT is not only a dynamic share due to its business model in line with the spirit of the times and its proven technology. It has also been the plaything of short-sellers in recent months. Will this situation now also attract Robinhood traders? Given its lower market capitalization compared to Nokia or Nikola, dynaCERT could be a worthwhile target for this new generation of stock market participants. Whether it will turn out the same way, however, is up in the stars, but real investors are already on board.
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