3 Reasons Why Rivian Can Continue To Surge Higher

Key Points

• Rivian's stock has risen over 40% year-to-date after breaking above critical resistance levels and establishing firm support.
• The stock broke out after the company announced stronger-than-expected Q2 delivery and production figures.
• The growing short interest might potentially lead to a significant short squeeze.
• Two recent price target increases and a consensus rating of Moderate Buy reinforce the potential for Rivian's upward momentum to continue.

Just over a week ago, shares of Rivian Automotive NASDAQ: RIVN were in the negative year-to-date. When I first wrote about Rivian precisely one week ago, the stock was up just 6.13% YTD. Today, shares of the EV company are up over 40% YTD. After breaking above critical resistance at $22, shares of Rivian have established firm support over $24, worrying shorts. Could the newfound support and increasing short interest indicate a second leg higher?

Rivian Automotive is a leading EV manufacturer specializing in pickup trucks and SUVs. They prioritize environmental sustainability and aim to achieve carbon neutrality earlier than the Paris Climate Accord timeline. Rivian offers R1T and R1S models, five-passenger pickup trucks, and SUVs. Founded in 2009, the company is headquartered in San Jose, California.

The Initial Breakout

After consolidating below $16 for several months, the stock finally broke out earlier this month off the back of a positive catalyst.

Rivian announced Q2 production totals and crushed delivery estimates. The company produced 13,992 in the second quarter, an increase of 48% from the previous quarter. The company commented that those figures remain in line with its expectations and believes it is on track to deliver on the 50,000 annual production guidance previously provided.

The announcement sent shares soaring, along with a significant rise in volume. While the stock is already up close to 30% on the week and has a current RSI of 82.93, indicating it is overbought, several factors indicate additional upward momentum could be the likely outcome.

Three Reasons Why The Move Can Continue:

The Short Interest

Over the last four months, the dollar volume sold short has steadily increased month over month. The short interest grew by 12.5% in June over the previous month. As of May 31, the short interest was 13.14% of the float, which means 85.6 million shares had been sold short. 

The short interest has likely increased substantially in the last two weeks, especially among intraday traders looking to find a potential top. On July 15, FINRA will publish the most recent short interest data.

Short sellers are likely feeling anxious as the stock failed to stay below the new support level of $24 when tested multiple times over the past three days. 

Analysts Boost Target Price

In the past week, Rivian has received two major price target increases. On July 7, Wedbush increased their target from $25 to $30, predicting almost 39% upside for Rivian shares on the date reported. Most recently, on July 10, Barclays boosted their price target from $22 to $30, predicting a 21% upside on the date reported.

Overall, analysts are bullish, with the consensus rating Moderate Buy. Based on 16 analyst ratings, the consensus price target is $26.94, predicting an almost 4% upside.

Recent Price Action Favors The Bulls

Over the last three days, shares of Rivian have developed strong support over prior resistance of $22.5 and are now basing firmly over $24. The recent price action indicates that shares were successfully able to digest the recent surge higher, and buyers remain firmly in control.

A new pattern has emerged over the last several days, with the stock failing to hold below $24 on multiple attempts and immediately being bid back toward $25.50. A bullish consolidation at the highs has formed, with $26 acting as significant resistance.

A push over $26 could spark a new round of buying and short covering, resulting in a significant supply and demand imbalance. $27.5 is the next critical level of resistance and potential target.