Despite a sea of red on markets today, the Redbubble Ltd (ASX: RBL) share price soared 9%.
For comparison, the Australian benchmark index S&P/ASX 200, is down 0.99%.
Why is the Redbubble share price rocketing when the rest of the market is down? Let’s take a look.
Why did the Redbubble share price bounce 9%?
It’s impossible to know for sure, but the most likely reason is that Morgan Stanley initiated coverage of the company with a $6.50 price target.
Investments banks such as Morgan Stanley provide research coverage for clients. It’s known as sell-side research. The research is disseminated to clients who work on the buy-side such as fund managers and wholesale clients.
Prior to today’s bounce, the price target is a 56% premium to Redbubble closing price.
What about the short positions?
Redbubble currently has about 7.9% of its share register shorted, making it the 8th most shorted stock on the market.
Based on the average volume of shares traded in the company, it would take about 9 days for all short positions to be covered.
With the share price rising as a result of Morgan Stanley’s report, shorts were racing for the exit door amplifying the share price increase.
Shorting is when an investor takes a position against the company, hoping that the share price will fall.
When shorting, the maximum an investor can make is a 100% gain. Whereas the losses are infinite.
Why is the market down today?
Overnight in the United States, markets were sold off amid a decline in technology names.
Subsequently, the local Australian market looks to have taken that lead.
It’s worth noting that minor price changes in either direction happen all the time.
I’d suggest not getting too caught up in day-to-day movements. Today’s blip will likely be a distant memory by tomorrow.
What next for the Redbubble share price?
Redbubble has its annual general meeting on October 25. Additionally, the business should be providing a first-quarter trading update during the month.
Both events will likely have an effect on the Redbubble share price.
If you’re interested in Redbubble, check out three reasons why my colleague Jaz Harrison likes the business.
