Mortgages are more than just a loan from a bank, they represent people’s hopes and dreams. Customers reward the businesses who satisfy the needs of mortgagors the best with truckloads of cash, which brings us to this week’s stock Rocket Companies (NYSE: RKT). Rocket companies is an online mortgage and car loan lender. The business “obsesses with helping their clients achieve the dream of homeownership and financial freedom”. It seems RKT fulfils its mission as they have a 4.9/5 star rating and a 96% recommendation rate. Wallstreet is equally attached to RKT as investors drove a 35% rally in two days after Rocket companies went public on Thursday.
Table of contents 1. Why is RKT up 2. Does YIG see value in a Rocket Companies investment?
Rocket Companies surges 35% on IPO
Rocket Companies wears a veteran badge as the giant corporation has been growing at a healthy rate for the past 35 years. Not to mention that RKT is the parent company of one of America’s largest mortgage lenders, Quicken loans. Thus when RKT debuted on the NYSE, arguably one of the biggest IPOs of 2020, investors went berserk. However, is there more to the IPO sensation than just a business name that investors are familiar with.
The early sell-off and fintech revolution were the driving factors for RKT’s IPO success. Rocket Companies said last week it was offering 150 million shares with an expected price range between $20 and $22 but on IPO day RKT only sold 100 million shares at $18. It seems the disappointing IPO price saw opportunists snap up shares while the sentiment was down. Since the minor sell-off, RKT’s share price has only climbed higher. The mortgage market is becoming digitalised, and RKT is shaping up to be the industry captain. Mainly because of their enormous customer base and excellent customer service.
Does YIG see value in a RKT investment?
Before I begin, I am obliged to remind our viewers that this is not advice but rather investment commentary from extensive research in the field.
Short answer: A long-term investment in RKT, America’s largest mortgage lender could potentially provide a gain. However, timing your entry with technical analysis is crucial (opinion not advice).
All signs point towards a bullish trend for RKT
RKT screams growth potential (opinion not advice). The disruptive mortgage lender should experience positive growth here on out as the digital economy continues to expand. Not to mention that refinancing mortgages, and buying homes should go up as the stay at home economy grows. Moreover, the online mortgage revolution will see customers flock to trustworthy lenders. Considering RKT recently surpassed Wells Fargo as the biggest mortgage lender in America, and holds 9% market share there is a high chance that mortgagors will gravitate towards Rocket Companies. Also, 54,332 Robinhood users bought RKT stock, which means more waves of retail investors should pile onto the mortgage disruptor.
Timing your entry in RKT with Technical Analysis
The fairytale beginning for RKT might encourage some investors to buy at open on Monday. The sentiment is incredibly bullish, and an investment on Monday should pay-off in the medium to long-term. (opinion not advice) However, if you want to potentially increase your profit on RKT, then timing your entry is essential. How do you time your entry? Professional investors use technical analysis to time their entry, whereas retail investors usually enter when the stock is hot.
Technical analysis might sound scary. However, it is simply comparing the current price to previous prices so that you can understand if the stock is overbought, oversold, or just bouncing up and down between a given region. Essentially traders use technical analysis to understand the supply and demand of a particular stock and time their entry accordingly. For RKT, we will keep it simple and use resistance and support levels.
RKT experiences strong support at $23, which was validated four times throughout Friday’s trading. If Rocket Companies falls to the $23 mark, but no below, then more investors will likely buy, and we should see RKT rise. However, YIG would like to point out that if RKT drops below $23, than the support level is broken, which should trigger a selling frenzy.
In terms of resistance, buyers stop buying RKT at $25. If investors drive the price above $25, the stock has broken out and should continue to climb higher in theory. However, YIG would like to point out that investing and hoping the stock will break out is dangerous. Because the closer RKT reaches its resistance level of $25 the higher the chance investors will begin to sell.
Overall, traders should look to time their entry when RKT sits above its support level but is about to rally in the near future. For example, if RKT dipped and traded just above its support level of $23 and if the sentiment was still bullish, then that could be a possible entry (opinion not advice). However, resistance and support levels are constantly changing, so what might have been on Friday may longer be the same on Monday.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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Written by Patrick McLoughlin, Senior Manager of YIG.